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Department of the Interior

Effective Date: 12/6/94

Series: Financial Management

Part 344: Debt Collection

Chapter 4: Standards for the Compromise of Claims

Originating Office: Office of Financial Management

4.1 Scope and Application. This Chapter describes the standards used for evaluating offers to compromise claims of the U.S. Government for money or property arising out of the activities of any bureau or office. The basis for these standards is 31 U.S.C. 3711.

A. Claim Does Not Exceed $100.000. The Solicitor has the authority to compromise claims that do not exceed $100,000, excluding interest, penalties, and administrative costs, before referring these claims to the General Accounting Office (GAO) or to the Department of Justice (Justice) for litigation. The Solicitor has redelegated such authority to the Associate, Regional and Field Solicitors. Recommendations for compromise are sent by the head of a bureau or office to the Office of the Solicitor after evaluation in accordance with the guidance of this Chapter. Additionally, the Comptroller General (or designee) may exercise compromise of claims referred to the GAO before their further referral for litigation.

B. Claim Exceeds $100.000. Justice has the sole authority to compromise a claim when it exceeds $100,000, exclusive of interest, penalties, and administrative costs. Bureaus should evaluate the offer to compromise using the guidance provided in this Chapter, and refer their recommendations to the Solicitor for evaluation. The Solicitor will refer all acceptable claims to Justice using the Claims Collection Litigation Report (344 DM 6.2). All claims with original amounts of $500,000 or less are sent to the U.S. Attorney in the judicial district where the debtor is located. Claims over $500,000 are sent to the Department of Justice, Commercial Litigation Branch, Civil Division, Washington, D.C. 20503.

4.2 Inability to Pay.

A. Compromised Claims. A claim may be compromised if the Government cannot collect the full amount of the debt because of: (1) the debtor=s inability to pay the full amount within a reasonable time, or (2) the refusal of the debtor to pay the claim in full and the Government=s inability to enforce collection in Bill within a reasonable time by enforced collection proceedings. In deciding the debtor=s inability to pay, the following factors, among others, may be considered:(1) age and health of the debtor; (2) present and potential income; (3) inheritance prospects; (4) the possibility that assets have been concealed or improperly transferred by the debtor; and (5) the availability of assets or income that may be realized by enforced collection proceedings.

B. Exemptions Under Law. Consideration is given to the applicable exemptions available to the debtor under State and Federal law in deciding the Government=s ability to enforce collection. Uncertainty as to the price which collateral or other property will bring at forced sale may properly be considered in deciding the Government=s ability to enforce collection. A compromise effected under this Chapter should bear a reasonable relation to the amount that can be recovered by enforced collection, considering the exemptions available to the debtor and the time which collection will take.

C. Installment Payments. Compromises payable in installments are discouraged. However, if payment of a compromise by installments is necessary, an agreement for the reinstatement of the prior indebtedness less sums paid is necessary. Additionally, in cases of default, the balance of the installment is due on demand. The debtor must also provide security in the manner set forth in 344 DM 2.9, when possible.

D. Credit Information. Up-to-date credit information is necessary to assess a compromise proposal. Credit information is obtained from the individual debtor by requiring a statement, executed under the penalty of perjury, that shows the debtor=s assets, liabilities, income, and expenses. Forms such as Department of Justice Form OBD-500 or OBD-500B (see 4 CFR 103.2(e)) may be used for this purpose. Similar data may be obtained from corporate debtors by using Department of Justice Form OBD-500C or by corporate balance sheet.

4.3 Litigative Probabilities. A claim may be compromised if there is a real doubt concerning the Government=s ability to prove its case in court for the full amount claimed either because of the legal issues involved or a bona fide dispute as to the facts. The amount accepted in compromise should fairly reflect the probability of prevailing on the legal question involved. It should also reflect the probabilities with respect to fill or partial recovery of a judgment having due regard to the availability of witnesses and other evidentiary support for the Government claim. The Government must also weigh related practical considerations. Proportionate weight should be given to the probable amount of court costs and attorney=s fees pursuant to the Equal Access to Justice Act that may be assessed against the Government if it is unsuccessful in litigation (see 28 U.S.C.2412).

4.4 Cost of Collecting Claim. A claim may be compromised if the cost of collecting the claim does not justify the enforced collection of the full amount. The amount accepted in compromise, in such cases, may reflect an appropriate discount for the administrative and litigation costs of collection. It should also consider the time it will take to effect collection. Cost of collecting may be a substantial factor in the settlement of small claims. The cost of collecting claims normally will not carry great weight in the settlement of large claims.

4.5 Enforcement Policy. Statutory penalties, forfeitures, or debts established for enforcement and to compel compliance may be compromised where accepting the sum agreed upon will adequately serve the Department=s Enforcement policy, in terms of deterrence and securing compliance, both present and future. Mere accidental or technical violations may be dealt with less severely than willful and substantial violations.

4.6 Joint and Several Liability. When two or more debtors are jointly and severally liable, collection action will not be withheld against one debtor until the other or others pay their proportionate share. The liquidation of the indebtedness should proceed as quickly as possible with no attempt to allocate the burden of paying between the debtors. The compromise with one debtor does not release the bureau=s claim against the remaining debtors. The amount of a compromise with one debtor will not be considered a precedent or as morally binding in determining the amount due from other debtors jointly and severally liable on the claim.

4.7 Settlement for a Combination of Reasons. A claim can be compromised for one or for more than one of the reasons authorized in this Chapter.

4.8 Further Review of Compromise Offers. If a debtor=s firm written offer of compromise is substantial in amount and the Solicitor is uncertain about whether the offer should be accepted, he/she may refer the offer, the supporting data, and particulars to GAO or Justice. GAO or Justice may act upon the offer or return it with instructions or advice.

4.9 Restrictions. Profits or stock in the debtor=s corporation is not acceptable in the compromise of a claim. In negotiating a compromise with a business concern, consideration should be given to requiring a waiver of the tax-loss-carry-forward and tax-loss-carry back rights of the debtor.

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12/6/94 #3438

Replaces 12/6/94 #3027