[Code of Federal Regulations]
[Title 7, Volume 14]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR1956.109]

[Page 264-265]
 
                          TITLE 7--AGRICULTURE
 
   CHAPTER XVIII--RURAL HOUSING SERVICE, RURAL BUSINESS--COOPERATIVE 
SERVICE, RURAL UTILITIES SERVICE, AND FARM SERVICE AGENCY, DEPARTMENT OF 
                         AGRICULTURE (CONTINUED)
 
PART 1956--DEBT SETTLEMENT--Table of Contents
 
       Subpart C--Debt Settlement--Community and Business Programs
 
Sec.  1956.109  General requirements for debt settlement.

    (a) Debt due and payable. The debt or any extension thereof on which 
settlement is requested must be due and payable under the terms of the 
note or other instrument, or because of acceleration by written notice 
prior to the

[[Page 265]]

date of application for settlement, unless the debt is to be cancelled 
without application under Sec.  1956.130(b) or charged off under Sec.  
1956.136 of this subpart.
    (b) Disposition of security. Ordinarily, all security will be 
disposed of prior to the date of application for settlement. There are 
exceptions:
    (1) It may be necessary to abandon security through the debt 
settlement process. For example, a community may be rendered 
uninhabitable by a toxic or hazardous substance. In such cases, debt 
settlement may proceed provided the servicing official determines:
    (i) That further collection efforts with respect to the security in 
question would be ineffective or uneconomical,
    (ii) That it is in the best interests of the Government to proceed 
with debt settlement,
    (iii) That the proposal otherwise meets the requirements appropriate 
to the type of settlement under consideration, and
    (iv) The approval of the Administrator is obtained.
    (2) A servicing action may have been carried out which resulted in a 
less than complete disposition of security. For example, the Government 
may have consented to a voluntary sale of a debtor's real and chattel 
property without reference to other security, which might include, but 
is not limited to: an additional lien on revenue, a third party pledge 
of security, or a pledge of personal liability. In such cases, debt 
settlement may proceed provided the requirements of Sec.  1956.109(b)(1) 
of this subpart are met.
    (3) Security can be retained under the compromise and adjustment 
offers as specified in Sec.  1956.124 of this subpart.
    (4) Settlement of a claim against an estate will be based on the 
recovery that may reasonably be expected, taking into consideration such 
items as the security, costs of administration, allowances of minor 
children and surviving spouse, allowable funeral expenses, dower and 
curtesy rights, and specific encumbrances on the property having 
priority over claims of the Government.
    (c) Proceeds from the sale of security. Proceeds from the sale of 
security must be applied on the debtor's account, taking into 
consideration the disposition requirements of any grant agreement, prior 
to the date of application for settlement, except when security is 
retained as provided for in Sec.  1956.109(b) of this subpart. Debtors 
will not be allowed to sell security and use the proceeds as part or all 
of the debt settlement offer.
    (d) County Committee review. Proposed settlement actions will be 
reviewed by the County Committee except for the cancellation of debts 
discharged in bankruptcy under Sec.  1956.130(b)(1) of this subpart or 
when a claim has been referred to a United States Attorney under Sec.  
1956.112(d) of this subpart. No settlement shall be approved if it is 
more favorable to the debtor than recommended by the County Committee.
    (e) Assistance from Office of General Counsel (OGC). When necessary, 
State Directors will obtain advice from OGC in handling proposed debt 
settlement actions.
    (f) Format. Form FmHA or its successor agency under Public Law 103-
354 1956-1, ``Application for Settlement of Indebtedness,'' will be 
utilized for all settlement actions under this subpart.