Kentucky Adminstrative Regulations

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103 KAR 1:070. Uniform collection procedures.

RELATES TO: KRS 13B.020, 45.237-45.241, 45.260, 45.345, 360.040

STATUTORY AUTHORITY: KRS 45.238(6), 45.241(5)

NECESSITY, FUNCTION, AND CONFORMITY: KRS 45.238(6) and KRS 45.241(5) require

the Finance and Administration Cabinet to promulgate administrative regulations for those

agencies without statutory procedures for collecting debts and to prescribe standards and pro-

cedures for effective administration regarding collection of debts, notices to persons (all indi-

viduals and business entities) owing debt, information to be monitored concerning the debts,

an appeals process, and the writing off of debts. This administrative regulation establishes the

above requirements, guidelines for collecting accounts receivable, and the minimum collection

actions required for collecting debts.

Section 1. Definitions. (1) "Agency" is defined by KRS 45.237(1)(a) and 45.241(1)(c).

(2) "Debt" is defined by KRS 45.237(1)(e) and 45.241(1)(a).

Section 2. Invoicing and Letter Collections. (1) Each agency’s mailing practices shall provide

for written notification that is sufficient to insure that the debtor understands the nature of the

debt and instructions for researching returned mail in order to obtain a more current address.

(2) Invoices shall be mailed to the debtor within five (5) working days after the debt becomes

due and contain clear and detailed information regarding the debt, who to contact with ques-

tions, and where to send the payment.

(3) The invoice shall contain the following components so that adequate information is pro-

vided:

(a) A header that identifies the name and address of the billing agency, the debtor, invoice

number, invoice date, customer number, due date, and the total amount due;

(b) A body section that contains:

1. Any specialized contract or agreement numbers and the billing period covered by the in-

voice.

2. Detail specifically identifying the debt, and if more than one (1) item is listed, the total

amount due;

3. A statement indicating if any interest or other charges may be imposed on late payments,

insufficiently funded checks, collection actions, etc.; and

4. Instructions regarding the appeals process; and

whom the debtor can correspond if the debtor has questions regarding the invoice.

(4) The agency shall keep a copy or an electronic record of letters sent to a debtor.

(5) The agency shall maintain a file, in an electronic medium if available, on each past-due

account, including documentation of all correspondence and all telephone contacts or meet-

ings.

(6) The agency shall establish a system to ensure that it reviews the debt if it receives no

response by the date specified.

(7) If the debtor does not respond to the original invoice, the agency shall send an additional

letter notifying the debtor that the account may be forwarded to the Department of Revenue for

collection action.

Section 3. Debtor Appeal Rights. Unless an agency is exempt from the provisions of KRS

Chapter 13B, as specifically provided in KRS 13B.020, any debtor of an agency shall have all

the rights contained in that chapter to appeal the finality of its debt.

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Section 4. Telephone Collections. (1) If the debtor does not respond satisfactorily to the writ-

ten notification of the debt, the agency shall attempt to contact the debtor by telephone.

(2) While engaged in a telephonic discussion with a debtor for payment, the agency shall:

(a) Attempt to secure a commitment for full payment of the debt;

(b) Negotiate an agreement with the shortest possible payment time frame as provided in

Section 6 of this administrative regulation, if the debtor is unable to pay the debt in full;

(d) Document any new agreements reached; and

(e) If the debtor has filed a bankruptcy proceeding, the agency shall obtain from the debtor

the bankruptcy court and case number. Upon verification of the bankruptcy proceeding, the

agency shall discontinue further collection action.

(3) During any telephone conversation with the debtor, representatives of the agency shall

not:

(a) Threaten violence, use obscene language, or make harassing phone calls;

(b) Call the debtor at work, if the debtor objects;

(d) Reveal the past due debt to a third party, such as a neighbor or employer. However, col-

lection personnel may report the debt to the agency’s attorney;

(e) Call at unusual times (after 8 a.m. and before 9 p.m. is assumed convenient); and

(f) Initiate a conversation with a debtor, if it is known that the debtor is represented by an at-

torney, without first obtaining permission from the attorney.

Section 5. Interest, Late Fees, and Other Penalties. (1) To determine the interest rate to

charge, the agency shall first look to the source of the debt. If it arises from a promissory note

or contract, the note or contract may state the amount of interest that applies and when it be-

gins to accrue. An agency may have specific statutes regulating interest rates. If no statute

specifically regulates the interest rate on debts owed to the agency, and a criminal or civil

judgment has been obtained, the judgment interest rate contained in KRS 360.040 shall be

applicable.

(2) The agency shall calculate accrued interest as follows: Unpaid principal (only) multiplied

by the interest rate divided by 365 multiplied by the number of days delinquent or since the last

interest calculation.

(3) The agency shall add other late fees or penalties if these types of fees and penalties are

addressed in a written agreement or applicable by statute.

Section 6. Payment Agreements. (1) The agency shall develop payment schedule guide-

lines for collection staff to use if making a payment agreement with a debtor.

(2) The agency shall, as nearly as practicable, use the following concepts in all payment

guidelines:

(a) Debtors may make payments by credit cards, debit cards, electronic checks, or auto-

mated clearinghouse debit (See KRS 45.345);

(b) If a minimum payment has not already been established, the agency shall use the follow-

ing payment schedule to determine a minimum payment amount:

Amount Due

Monthly

Payment

Minimum

Payment

$0 - $50

Pay in Full

N/A

$51 - $500

$50

$25

$501 -

$75

$40

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$1,000

$1,001 -

$2,000

$100

$50

$2,001 -

$3,000

$200

$75

$3,001 -

$5,000

$300

$100

Over $5,000

The debtor's financial state-

ments shall be reviewed to

determine a minimum pay-

ment.

to the agency that imposition of the minimum standards would cause an undue hardship on the

debtor or the debtor’s dependents;

(d) If a payment agreement extends for more than six (6) months, the agency shall send the

debtor a confirmation letter;

(e) The agency shall verify information regarding the debtor and request additional asset in-

formation for enforcement purposes if the debtor’s promise is not kept or the arrangements are

not followed;

(f) The agency shall inform the debtor that any tax refund or other amounts due or that be-

come due during the tenure of the agreement from any other agency will be offset to the debt;

and

(g) If the debtor defaults on a payment agreement, the case shall be referred through nor-

mal referral procedures to the Department of Revenue for further enforced collection activity.

Section 7. Debtor Information. (1) An agency shall collect and record sufficient information

when a transaction for goods and services is initiated in order to facilitate effective collection

measures. This information shall include:

(a) Current address;

(b) Current telephone number;

(d) The name of any bank where they have an account and the account numbers, if availa-

ble.

(2) The agency shall maintain current information regarding the debtor on all active ac-

counts.

(3) The agency may obtain debtor information with a written application form, an interview,

or both. The minimum information to be contained on any application form or acquired in any

interview shall be defined in the agency’s policies and shall be sufficient to ensure collection of

the account. If obtaining information from a business, the agency shall specify the type of busi-

ness entity involved and obtain a list of owners with their Social Security numbers or FEINs, if

applicable, and their phone numbers.

(4) If specifically authorized to do so, an agency may develop written policies to address

when to delay or withhold services to a delinquent debtor.

(5) An agency shall explore new technologies and collection practices that can be integrated

with its current policies, procedures, and information systems that will improve efficiencies in

its collection practices.

Section 8. Determining Ability to Pay. (1) Each state agency has a duty to make all reason-

able efforts to collect the full amount of monies owed to it or otherwise charged to it for collec-

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tion (Section 52 of the Kentucky Constitution and KRS 45.260). An agency shall employ all

available legal, and cost-effective means that are appropriate to the circumstances in its collec-

tion efforts. A means of collection may be considered cost effective if it is reasonable to expect

the costs of collection to be less than the debt.

(2) The agency may consider any debt, including interest and penalties or any portion of the

debt, uncollectible if the debtor has no money or other thing of value owing or held by any oth-

er state agency that has not been credited to the debt, and it is reasonable to conclude, after

all reasonable efforts to collect the debt have been made, that one (1) or more of the following

is true:

(a) The debtor does not, and will not for the foreseeable future, own or have the right to own

assets from which the state agency can collect the debt;

(b) It is reasonably estimated that the cost of collecting the debt would equal or exceed the

amount of the debt;

state agency can collect the debt;

(d) The debtor is a corporation that is not, and for the foreseeable future will not, be en-

gaged in any income-producing activity, and no assets exist from which the agency can collect

the debt;

(e) The debtor’s estate is subject to a pending bankruptcy proceeding in which it is reason-

able to conclude that the debt will be discharged and that the state agency will receive none or

an insubstantial share of the assets of the bankruptcy estate; or

(f) The agency is, and will be for the foreseeable future, unable to collect the debt from the

debtor or from anyone owing the debtor money or holding assets of or from the debtor.

(3) If an agency determines that one (1) or more of the circumstances listed in subsection

(2) of this section exists after the appropriate collection steps listed in this administrative regu-

lation have been taken or if the Department of Revenue has returned the debts, because it has

determined that the collection of the debt is not feasible or cost effective, the debt may be

charged off as uncollectible. (32 Ky.R. 1010; 1218; eff. 2-3-2006.)