Policy on CFOB Hardship

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Effective date: July 9, 2004
Revised: July 2010

Table of Contents:

context

1. Policy Objective
2. Application
3. Policy Statement
4. Policy Requirements
   • 4.1 Full Amount Due
   • 4.2 Automatic Recovery From Benefit Payment
   • 4.3 Hardship
     • 4.3.1 Definition of Undue Hardship
     • 4.3.2 Determination of Hardship
     • 4.3.3 Recovery Agreement with Debtor
     • 4.3.4 Interest Waiver - EI Debts
     • 4.3.5 Subsequent Benefit Entitlements
     • 4.3.6 Records Retention
5. Roles and Responsibilites
6. Monitoring and Compliance
7. Defenitions
8. References

Context

The Treasury Board Secretariat's Directive on Receivables Management stresses the principles of fair treatment to debtors. This includes a requirement for departments to consider the financial situation and any other special circumstances regarding a debtor when collecting a debt. Other critical elements of fair treatment to debtors include the consistent application of legislation and policies and open communication with the debtor. Debtors need to be informed of their rights and obligations in relation to their debt and the support and service they can expect from the government. The Department communicates its collection policies to debtors in a number of formats. A pamphlet has been prepared which explains the debtor's rights and obligations and the steps that will be taken to recover the debt.

The Policy on Hardship provides a harmonized approach to the identification and assessment of hardship. It also provides a policy framework which recognizes the need for consistent treatment yet flexible recovery practices which can be adjusted to take into account each debtor's circumstances.

The perception of consistent treatment for individuals who are in similar circumstances promotes voluntary debt repayment.

1. Policy Objective

The objective of this policy is to ensure that a debtor is not placed in undue hardship as a result of the recovery of a debt owed to the Crown.

2. Policy Statement

The Department, while vigorously pursuing the collection of debt due to the Crown, is to ensure that there is no undue hardship placed on the debtor.

3. Application

This policy applies to Human Resources and Skills Development Canada (HRSDC) including Service Canada hereafter referred to as the “Department” or Departmental.

4. Policy Requirements

4.1 Full Amount Due

The first step in recovering a debt is to provide the debtor with a Notice of Debt requesting the payment of the full amount.

For Canada Student Loans, however, a loan repayment schedule is negotiated with the debtor and the full amount does not become due unless the debtor defaults on the repayment arrangements.

For debts under the Labour Program, other than grant and contribution debts, the full amount is payable.

All other debts are considered due on notification of the debt. The Monthly Statement of Account sent to the debtor will indicate a minimum monthly payment. The minimum is calculated as a percentage of the debt, which currently ranges from 100% for amounts of $200 or less to 3% for debts over $10,000, with average minimum payments of $350. The account is considered in good standing provided the debtor makes the minimum monthly payment.

The Monthly Statement of Account provides a point of contact for debtors who are unable to pay the amount indicated on the statement and who need to discuss alternate payment arrangements.

4.2 Automatic Recovery From Benefit Payment

For debtors in receipt of employment insurance (EI Part I), Canada Pension Plan (CPP) or Old Age Security (OAS) benefits, a deduction will automatically be made from benefit payments to recover debts in the same program as the benefit. Within the Income Security Program (ISP), deductions from benefits may also be made to recover debts in other ISP programs.

The default rates of reduction must be established at a level that is not expected to cause hardship for the client, given the fact that these payments are forms of income replacement.

The default rates of deduction from social benefit payments are:

• 50% of EI benefits,
• 25% of CPP and OAS benefits, or
• 10% of CPP and OAS benefits if in receipt of ISP supplementary benefits.

The default rate of recovery is lower for those on ISP benefits generally due to the advanced age of the client and the greater potential for hardship to exist. The default rate for ISP clients receiving supplementary income tested benefits (the Guaranteed Income Supplement, the Allowance or the Allowance for the Survivor) is lower as there is even greater potential for hardship to exist as a result of the benefit reduction.

The client is notified that benefits will be reduced for the recovery of a debt and is instructed to contact the recovery office if the rate of reduction causes difficulty.

4.3 Hardship

The onus is on the debtor to contact the recovery office if the current payment arrangement is causing difficulty. Although each case will be judged on its own merits, every effort will be made to treat debtors consistently and equitably. At all times, debtors will be treated with dignity and respect.

4.3.1 Definition of Undue Hardship

There is no precise legal definition of undue hardship, nor is there a standard formula for determining undue hardship. Each debtor’s situation should be considered unique. For the purposes of this policy undue hardship exists when the debtor's personal and financial situation is such that making payments on amounts owed to the Crown would deprive the debtor of the necessities of life.

4.3.2 Determination of Hardship

Hardship will be determined on the basis of the client's financial ability to pay the debt. Any personal information presented by the client that affects the ability to pay will also be taken into consideration. The evaluation may include all of the following information:

• all sources of the debtor's family income including that of the spouse or partner;
• the debtor's family expenses such as food, shelter, utilities and health care;
• all assets of the debtor, including shared assets;
• all of the debtor's family liabilities and obligations, such as credit cards, chattel mortgages and short and long-term loans; and
• the personal situation of the debtor preventing his or her ability to pay.

A financial questionnaire has been developed to solicit the required information. National Collection Services maintains a kit which includes the financial questionnaire and related information for the client.

The Recovery Officer will use discretion in determining how much information is required in a specific case. If a satisfactory repayment arrangement can be negotiated by telephone, the full financial questionnaire may not be sent to the client for completion. The information that is provided will be assessed in accordance with national guidelines.

The Canada Student Loans legislation provides for the cancellation of the debtor's obligation to repay a student loan under a permanent disability benefit (PDB). The eligibility criteria for the PDB are that the debtor have a permanent disability and be experiencing exceptional financial hardship due to the disability. In this situation, more detailed information regarding the student's education and employment history is required to assess permanent disability.

Given the continuing nature of Income Security Program benefits and the potential to continue recovery from benefits into the future, the renegotiation of a recovery rate for an ISP debt can be based on the client's available income without obtaining information about assets and liabilities.

4.3.3 Recovery Agreement with Debtor

The client's ability to pay will be determined as the amount which can be paid without causing undue hardship. This may be a very small amount, or, it may be determined that the client is unable to make any payments at the present time.

Depending on the client's ability to pay, appropriate recovery action may include renegotiation of a benefit reduction rate or repayment schedule, suspension of collection activity, and write-off or remission of the debt.

Where a payment arrangement is negotiated, either through contact by telephone or by exchange of correspondence, it is considered to be an agreement between the debtor and the recovery office. The Recovery Officer will use judgement in determining when to confirm a verbal agreement in writing.

The client must be advised during the negotiation that we may continue to request a set-off from tax refunds or other amounts payable to the debtor by the Canada Revenue Agency. The client must also be informed that we will reapply any miscellaneous credit amounts occurring in the account to outstanding debts during the period that the recovery agreement is in effect.

The client must be advised to notify the recovery office immediately about changes in their financial situation or changes to their address, telephone number or other contact information.

Where the client is only expected to be in a situation of hardship for a short period (up to 6-months), the situation will be reviewed again at the end of this period.

Where the client is expected to be in a situation of hardship for an extended period, the situation will be reviewed periodically. Consideration will be given to writing off or remitting the debt in accordance with applicable legislation at the earliest possible time where the situation is not expected to improve.

4.3.4 Interest Waiver - EI Debts

When recovery action is suspended for a client who is considered to be in a hardship situation, the interest accrual on EI debts may be waived for this period in accordance with section 56.1(8)(c) of the Employment Insurance Regulations.

4.3.5 Subsequent Benefit Entitlements

When a benefit ceases to be paid and a new benefit subsequently becomes payable, a rate of recovery or withholding that was previously negotiated with the client may no longer be appropriate. Depending on the circumstances, we may revert to the default rate of recovery or withholding and the onus will be on the client to initiate alternate payment arrangements, if necessary.

4.3.6 Records Retention

Records and supporting documentation for debts written-off or remitted must be maintained for six years for audit and reporting purposes. Refer to the Financial Records Retention Policy for additional information on this topic.

5. Roles and Responsibilities

It is the debtor's responsibility to notify the recovery office that repayment of their debt is causing or will cause hardship and to provide supporting documentation. The debtor is also responsible for notifying the recovery office about changes in their financial situation and changes to their address, telephone number or other contact information.

The Recovery Officer responsible for the debtor's account will consult with the debtor to ensure that all reasonable repayment options have been explored, to ensure they clearly understand the circumstances supporting the debtor's claim of hardship, and to ensure the debtor understands the process and their responsibilities. The Recovery Officer should show understanding and compassion for the debtor's circumstances and will administer any information provided in accordance with the provisions of the Privacy Act and the Access to Information Act.

The Recovery Officer will recommend cases of hardship which meet the criteria for write-off or a waiver of interest accrual to management for approval.

6. Monitoring and Compliance

This policy and the achievement of expected results will be monitored in a variety of ways including but not limited to assessments under the Management Accountability Framework, examinations of Treasury Board Submissions, departmental performance Reports results of audits, evaluation and studies.

7. Defenitions

Undue hardship. – A debtor’s personal and financial situation is such that making payments on amounts owed to the Crown would deprive the debtor of the necessities of life.

Debt – An obligation due to Her Majesty or a claim by Her Majesty.

Debt write-off –: An accounting entry for the removal, in whole or in part, of an uncollectible debt from the accounts receivable records or the asset and liability accounts of the Department. It does not extinguish the debt or release the debtor from the obligation to pay, nor does it affect the right of the Crown to undertake collection in the future.

Debt remission: A permanent deletion method for budgetary items that may be conditional or unconditional. When remission is conditional, it is deemed not to have been granted if the condition is not fulfilled. Unconditional remission extinguishes the debt, releases the debtor from all liability, waives the Crown’s right to reinstate the debt and permits both the Crown and the debtor to remove the debt from their accounts (Sections 23 and 24,) of the FAA.

8. References

Canada Student Financial Assistance Act
Canada Student Loans Act
TBS Directive on Receivables Management
Employment Insurance Regulations, s. 56.1
Debt Write-Off Regulations, 1994
DARS Specifications Manual, DTO20, Minimum Monthly Payment Table (DOC, 812 KB)
Financial Records Retention Policy