Once an individual or organization owes the United States money, the U.S. becomes like any other creditor, it can file a lawsuit and if successful it can reach your assets including taking liens on property or garnishing your wages. However, unlike other debtors the federal government must comply with certain procedures, and also gets certain privileges, outlined in the Federal Debt Collection Procedures Act of 1990 (FDCPA) before collecting assets or securing judgments.
Background of the FDCPA
The U.S. owes over $16 trillion in debt to the public and governments across the globe.[i] As a result in the past several decades the U.S. government has increased efforts to collect debts owed to it to help make up for its tremendous financial deficit. FDCPA was enacted to facilitate the collection of debts by unifying the procedures by which the government can seize assets and real estate.[ii] Before FDCPA was enacted US Attorney Generals had to abide by the Federal Rules of Procedure, which meant that the collections laws of the states where federal courts resided dictated how the government could collect on defaulted debts. However, FDCPA now generally preempts state remedies law.[iii] Though FDCPA does recognize limited circumstances where remedies for specific secured loans may be governed by state law not by FDCPA.[iv]
What Debts Does the FDCPA Apply To?
The meaning of debts under FDCPA is very expansive, 28 U.S.C. § 3002(3) lists fees, fines, overpayments, penalties, restitution, taxes, and related interest among many other types of obligations that are considered debts. Essentially, any money owed to an agency of the federal government can likely be considered a debt under FDCPA. Additionally, to use the procedures outlined in FDCPA the federal government must use a federal court.[v] Courts have also held that damages from lawsuits including awards for back pay are debts under FDCPA.[vi] Although some types of debts have additional collections procedures that may be applied. For example, the Internal Revenue Service may still use the remedies specified in the tax code and state remedies law.[vii] Additionally, federal tax liens and judicial sales are not affected by FDCPA.[viii] Disgorgement orders from the Securities and Exchange Commission are also not eligible debts under FDCPA.[ix]
What Does the Act Allow?
Before getting awarded a judgment against a debtor the U.S. can secure the debtor’s assets by attachment, receivership, garnishment, and sequestration. However, the U.S. must first show sufficient legal and factual reasons for the remedy, as outlined in 28 USC § 3101(b). Reasons include when the debtor is going to leave the U.S., has already left the U.S., or will soon dispose of or convert the assets at stake. A hearing is not always necessary before a court will grant the government’s request for prejudgment remedies. A hearing must be requested in writing from the debtor.[x]
Postjudgment Remedies Including Judgment Liens
Remedies to collect a judgment are also available under FDCPA. One of the most often used remedies is the judgment lien. FDCPA allows the U.S. government to place a lien on “all real property” owned by a debtor by filing a certified copy of a federal judgment entered against the debtor in the state or county clerk’s office where the property resides.[xi] The lien lasts for a 20 year period but can be renewed for an additional twenty years at any time before the initial 20 years expires.[xii]
Some property is exempt from FDCPA judgment liens including tenancies by the entirety or joint tenancy property in some states. Property determined by federal bankruptcy law to be exempt from judgment liens are also exempt from from FDCPA. However, remember that when FDCPA does not apply other state or federal remedies law may allow a creditor to attach a lien on property.
Reversal of Fraudulent Transfers
FDCPA also provides a way for the federal government to reclaim money that was spent in order to prevent the government from reaching it. 28 USC § 3304 allows the U.S. to reclaim fraudulent transfers to satisfy debts owed to the government. A transfer is considered fraudulent if it was made after the debtor incurred the obligation, did not receive anything of “reasonably equivalent value in exchange for the transfer” and the debtor becomes insolvent as a result of or before the transfer.[xiii] This can include case where something of value is given, but it is only valuable in an illegal market. For example, if a debtor made a payment to a bookie for illegal gambling debts the U.S. government can reverse the transaction and take the money given to the bookie because illegal gambling debts have no legal value.[xiv]
A transfer may also be considered fraudulent if the transfer was made to an insider when the debtor was insolvent at the time of making the transfer and the creditor knew this.[xv] In some cases transfers made before the government debt was incurred can also be considered fraudulent transfers; eleven factors are given to consider whether a transfer was fraudulent. They include if the debtor retained possession of the property, or if the transaction was concealed.
FDCPA allows the federal government to secure assets before or after being awarded a judgment to collect on money owed to any agency or branch of the U.S. government. Under FDCPA the government gets special rights, such as the ability to avoid posting a bond for prejudgment remedies. However, it must also comply with specific notice requirements before being awarded the remedies it seeks.
[ii] Small, Marshall L., Limitations Imposed by the Federal Debt Collection Procedures Act on Use of Prejudgment Remedies to Enforce Federal Administrative Agency Claims for Monetary Payments, 49 The Business Lawyer 1546 (1994).