Sample Payment Agreement by pfv18980

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									Debtor Repayment Options:
Installment Agreements and
Compromises

        DMS Legal Forum
         June 15, 2010
General rule: Collect the Debt!
   The head of an executive, judicial, or
    legislative agency shall try to collect a
    claim of the United States Government
    for money or property arising out of the
    activities of, or referred to, the agency
    (31 U.S.C. 3711(a)(1)).

   Whenever feasible, agencies shall collect
    the total amount of the debt in one lump
    sum (31 CFR 901.8)
       Includes principal, interest, penalties, costs,
        and other amounts due


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    Installment Agreements
   Due process pre-requisite for certain debt
    collection remedies requires the agency to give the
    debtor an opportunity to make a written
    agreement with the agency to repay the amount of
    the claim.

   For example:
       Offset of nontax payments (31 U.S.C. 3716(a)(4); 31 CFR
        285.5(d)(6)(ii)(D); agency regulations)

       Offset of tax payments (31 U.S.C. 3720A; 31 CFR
        285.2(d)(iii)(D); agency regulations)

       Administrative wage garnishment (31 U.S.C. 3720D; 31
        CFR 285.11(e)(2)(ii); agency regulation)


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    Installment Agreements: Federal Claims
    Collections Standards (31 CFR 901.8)
   If a debtor is financially unable to pay a debt in one
    lump sum, agencies may accept payment in regular
    installments.
   Agencies should obtain current financial statements
    from debtors who represent that they are unable to
    pay in one lump sum. Financial statement should:
        Be signed by the debtor under penalty of perjury, and
        Show debtor’s assets, liabilities, income, and expenses.

   Agencies should independently verify such
    representations whenever possible, using credit
    reports or other available financial information (31 CFR
    902.2(g)).




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    Installment Agreements: Federal Claims
    Collections Standards (31 CFR 901.8)

   Agencies should obtain a legally enforceable
    written agreement from the debtor that:
        Specifies the terms of the agreement, and
        Contains a provision accelerating the debt in the
         event of default.

   Agencies may accept installment payments
    even if the debtor refuses to sign a written
    agreement.




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Dad to son: “No,
Jimmy, I distinctly
said that you can
halve your allowance
if you mow the lawn.
That’s why we ask for
things in writing.”
    Installment Agreements: How much should
    a debtor pay? (31 CFR 901.8)

   Size and frequency of installment
    payments should bear a reasonable
    relationship to the size of the debt and the
    debtor’s ability to pay.
   If possible, the installment payments
    should be sufficient in size and frequency
    to liquidate the debt in 3 years or less.




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Question 1
Your Agency recently sent a 60-day due process
letter to Miss Behave advising her that if she didn’t
pay her debt by August 15, 2010, her debt would
be referred to Treasury for offset. Miss B. owes
$45,000. On August 14, 2010, Miss B. calls you
and offers to pay $50 per month, which is all she
can afford to pay.
 1.   What should you do?

 2.   Would it make a difference if Miss B. offered $1,250 per
      month? (HINT: $45,000 divided by 36 = $1,250)

 3.   What if Miss B. called you on August 16, 2010?
Question 2
Miss Behave refuses to send you any financial
information. She tells you that she receives $400
per month in Social Security and spends about $50
per month on medication. You have pulled her
credit report and you do not see anything related
to ownership of any property.
 1.   Should you accept the $50 per month that Miss B. is
      offering?

 2.   Should you accept the $1,250 per month offer?

 3.   Would you prepare a written agreement in either of these
      situations, and if so, what should the agreement state?
    Suggested Payment Agreement
    Terms
   Parties’ names and contact info

   Debtor’s TIN

   Total amount of the debt

   Total payment amount, including interest, penalties, and costs

   Effective date and final payment date

   When, where and how debtor is required to make payment
       “Time is of the essence.”

       If debt is secured by collateral, all payments due when collateral
        is sold or transferred



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Suggested Payment Agreement
Terms (cont.)
   State whether or not total payment amount is
    accepted as full and final payment.

   Will offset continue during agreement? If so,
    agreement should state that offset payments
    applied to the debt and do not change payment
    due dates.

   Upon default, all payments due (acceleration
    clause) (for compromise payment agreements,
    reinstate all amounts due).




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Suggested Payment Agreement
Terms (cont.)
   What happens if debtor fails to pay:

        Default and termination of agreement, without notice,
         and at agency’s option; Agency may accept late
         payments without waiving its rights.

        Acceleration and reinstatement of all amounts due.

        Continue collection action without add’l notice.

   Payments applied as follows: 1st to costs, fees &
    penalties; 2nd to interest; last to principal; if more
    than one debt, oldest debt 1st.

   Excess payments may be applied to other debts owed
    to the United States or refunded without interest, at
    agency’s option.


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    Suggested Payment Agreement
    Terms (cont.)
   Agreement does not affect or change debtor’s non-
    payment obligations related to the debt or other non-
    tax or tax obligations debtor may owe to the United
    States.

   Agreement does not apply to other people (for
    example, co-debtors)

   Agreement may only be modified in writing.




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    Debtor Acknowledgements
   Debtor should be asked to sign and return
    a copy of the agreement to agree to terms
    and to acknowledge and represent:
       Total debt is due and debtor is unable to pay
        (all representations regarding financial
        circumstances are true);

       Debtor releases United States from any claims
        related to the debt;

       Debtor has had an opportunity to review
        agreement with legal counsel and accountants.


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    Compromise of Claims
   When appropriate, agencies may accept less
    than the full amount due as a compromise
    (31 U.S.C. 3711(a)(2)).

   Most agencies require Dept. of Justice
    approval for compromises of debts over
    $100,000 (principal only).

   Treasury may approve up to $500,000 for
    debts in cross-servicing

        Exception: Agencies with independent litigation
         authority
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Compromise of Claims
   Unless Dept. of Justice approves, agency
    head may NOT compromise debt that:
       appears to be fraudulent, false, or misrepresented
        by a party with an interest in the claim
       is based on conduct in violation of the anti-trust
        laws

   Know your agency-specific laws regarding
    compromises
       Transportation may not compromise for less than
        $500 certain penalties



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Compromise: Federal Claims Collections
Standards (31 CFR Part 902)

   Bases for compromise:
       Debtor unable to pay full amount in a
        reasonable time (inability to pay)
       Government unable to collect the debt in full
        within a reasonable time by enforced collection
        proceedings
       Cost of collection does not justify enforced
        collection
       Significant doubt about Government’s case



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Compromise: Federal Claims Collections
Standards (31 CFR Part 902)

   In determining debtor’s inability to pay,
    agencies should consider relevant factors,
    such as:
       Age and health of the debtor;
       Present and potential income;
       Inheritance prospects;
       The possibility that assets have been concealed
        or improperly transferred by the debtor; and
       The availability of assets or income that may be
        realized by enforced collection proceedings.

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Compromise: Federal Claims Collections
Standards (31 CFR Part 902)

   Agencies must verify inability to pay:
       Credit report

       Financial statement

       Other available financial information

   Do not need financial information if
    compromise not based on inability to
    pay


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Compromise: Federal Claims Collections
Standards (31 CFR Part 902)

   Compromise amount should be for an
    amount that bears reasonable relation to
    the amount that could be recovered
    through litigation

   Agencies generally should not accept
    compromise in installments

   Agencies should consider whether
    continued collection is necessary to
    further enforcement principle, regardless
    of cost


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Question 3
Jane and John Lawyer borrowed $35,000 from
your agency to start a business. They defaulted
on the debt and subsequently got divorced. You
learn that Jane Lawyer now runs the business and
she wants to compromise the debt by paying
$17,500.
 1.   What do you need to know in order to decide whether to
      accept the compromise?

 2.   What is John Lawyer’s obligation to your agency since he
      did not get the business as part of the divorce before the
      compromise with Jane? If your agency accepts the
      compromise, does that change Mr. Lawyer’s obligation?
Question 4
You receive a call from Bob Citizen who owes your
agency $3,500 for a salary overpayment he received
when he worked for your agency 3 years ago. He tells
you that his wife has been deployed in Afghanistan for
almost a year, and that he is a single dad raising two
toddlers. He tells you that he could easily pay the
debt, but doesn’t believe he should have to pay since it
was the government’s mistake, and he and his wife
have already given more than enough to their country.
He tells you that he’s willing to pay $2,000 as a
compromise.
 1.   Can you accept this compromise offer? If yes, on what basis?

 2.   Would your answer be different if the debt was a fine or
      penalty?
    Resources
   FMS Website: http://fms.treas.gov/debt/index.html
   Managing Federal Receivables
    http://fms.treas.gov/debt/MFR/ManagingFederalReceiv
    ables.pdf
      Chapter 6: Delinquent Debt Collection

      Chapter 7: Termination of Collection Action, Write-
       off and Close-out/Cancellation of Indebtedness
      Appendix 9: Sample Financial Statement

   FMS Office of Chief Counsel (202) 874-6680




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Questions?




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