[Code of Federal Regulations]

[Title 42, Volume 1]

[Revised as of October 1, 2005]

From the U.S. Government Printing Office via GPO Access

[CITE: 42CFR60.35]



[Page 333-336]

 

                         TITLE 42--PUBLIC HEALTH

 

    CHAPTER I--PUBLIC HEALTH SERVICE, DEPARTMENT OF HEALTH AND HUMAN 

                                SERVICES

 

PART 60_HEALTH EDUCATION ASSISTANCE LOAN PROGRAM--Table of Contents

 

                     Subpart D_The Lender and Holder

 

Sec. 60.35  HEAL loan collection.



    A lender or holder must exercise due diligence in the collection of 

a HEAL loan with respect to both a borrower and any endorser. In order 

to exercise due diligence, a lender or holder must implement the 

following procedures when a borrower fails to honor his or her payment 

obligations:

    (a)(1) When a borrower is delinquent in making a payment, the lender 

or holder must remind the borrower within 15 days of the date the 

payment was due by means of a written contact. If payments do not 

resume, the lender or



[[Page 334]]



holder must contact both the borrower and any endorser at least 3 more 

times at regular intervals during the 120-day delinquent period 

following the first missed payment of that 120-day period. The second 

demand notice for a delinquent account must inform the borrower that the 

continued delinquent status of the account will be reported to consumer 

credit reporting agencies if payment is not made. Each of the required 

four contacts must consist of at least a written contact which has an 

address correction request on the envelope. The last contact must 

consist of a telephone contact, in addition to the required letter, 

unless the borrower cannot be contacted by telephone. The lender or 

holder may choose to substitute a personal contact for a telephone 

contact. A record must be made of each attempt to contact and each 

actual contact, and that record must be placed in the borrower's file. 

Each contact must become progressively firmer in tone. If the lender or 

holder is unable to locate the borrower and any endorser at any time 

during the period when the borrower is delinquent, the lender or holder 

must initiate the skip-tracing procedures described in paragraph (a)(2) 

of this section.

    (2) If the lender or holder is unable to locate either the borrower 

or the endorser at any time, the lender or holder must initiate and use 

skip-tracing activities which are at least as extensive and effective as 

those it uses to locate borrowers delinquent in the repayment of its 

other loans of comparable dollar value. To determine the correct address 

of the borrower, these skip-tracing procedures should include, but need 

not be limited to, contacting any other individual named on the 

borrower's HEAL application or promissory note, using such sources as 

telephone directories, city directories, postmasters, drivers license 

records in State and local government agencies, records of members of 

professional associations, consumer credit reporting agencies, skip 

locator services, and records at any school attended by the borrower. 

All skip-tracing activities used must be documented. This documentation 

must consist of a written record of the action taken and its date and 

must be presented to the Secretary when requesting preclaim assistance 

or when filing a default claim for HEAL insurance.

    (b) When a borrower is 90 days delinquent in making a payment, the 

lender or holder must immediately request preclaim assistance from the 

Public Health Service. The Secretary does not pay a default claim if the 

lender or holder fails to request preclaim assistance.

    (c) Prior to the filing of a default claim, a lender or holder must 

use, at a minimum, collection practices that are at least as extensive 

and effective as those used by the lender or holder in the collection of 

its other loans. These practices must include, but need not be limited 

to:

    (1) Using collection agents, which may include its own collection 

department or other internal collection agents;

    (2) Immediately notifying an appropriate consumer credit reporting 

agency regarding accounts overdue by more than 60 days; and

    (3) Commencing and prosecuting an action for default unless:

    (i) In the determination of the Secretary that:

    (A) The lender or holder has made reasonable efforts to serve 

process on the borrower involved and has been unsuccessful in these 

efforts; or

    (B) Prosecution of such an action would be fruitless because of the 

financial or other circumstances of the borrower;

    (ii) For loans made before November 4, 1988, the loan involved was 

made in an amount of less than $5,000; or

    (iii) For loans made on or after November 4, 1988, the loan involved 

was made in an amount of less than $2,500.

    (d) If the Secretary's preclaim assistance locates the borrower, the 

lender or holder must implement the loan collection procedures described 

in this section. When the Secretary's preclaim assistance is unable to 

locate the borrower, a default claim may be filed by the lender as 

described in Sec. 60.40. The Secretary does not pay a default claim if 

the lender or holder has not complied with the HEAL statute and 

regulations or the lender's or holder's insurance contract.



[[Page 335]]



    (e) If a lender or holder does not sue the borrower, it must send a 

final demand letter to the borrower and any endorser at least 30 days 

before a default claim is filed.

    (f) If a lender or holder sues a defaulted borrower or endorser, it 

may first apply the proceeds of any judgment against its reasonable 

attorney's fees and court costs, whether or not the judgment provides 

for these fees and costs.

    (g) Collection of chapter 7 bankruptcies. (1) If a borrower files 

for bankruptcy under chapter 7 of the Bankruptcy Act and does not file a 

complaint to determine the dischargeability of the HEAL loan, the lender 

or holder is responsible for monitoring the bankruptcy case in order to 

pursue collection of the loan after the bankruptcy proceedings have been 

completed.

    (i) For any loan for which the lender or holder had not begun to 

litigate against the borrower prior to the imposition of the automatic 

stay, the period of the automatic stay is to be considered as an 

extended forbearance authorized by the Secretary, in addition to the 2-

year period of forbearance which lenders and holders are authorized to 

grant without prior approval from the Secretary. Only periods of 

delinquency following the date of receipt (as documented by a date 

stamp) of the discharge of debtor notice (or other written notification 

from the court or the borrower's attorney of the end of the automatic 

stay imposed by the Bankruptcy Court) can be included in determining 

default, as described in Sec. 60.40(c)(1)(i). The lender or holder must 

attempt to reestablish repayment terms with the borrower in writing no 

more than 30 days after receipt of the discharge of debtor notice (or 

other written notification from the court or the borrower's attorney of 

the end of the automatic stay imposed by the Bankruptcy Court), in 

accordance with the procedures followed at the end of a forbearance 

period. If the borrower fails to make a payment as scheduled, the lender 

or holder must attempt to obtain repayment through written and telephone 

contacts in accordance with the intervals established in paragraph 

(a)(1) of this section, and must perform the other HEAL loan collection 

activities required in this section, before filing a default claim.

    (ii) For any loan for which the lender or holder had begun to 

litigate against the borrower prior to the imposition of the automatic 

stay, the lender or holder must, upon written notification from the 

court or the borrower's attorney that the bankruptcy proceedings have 

been completed, either resume litigation or treat the loan in accordance 

with paragraph (g)(1)(i) of this section.

    (2) If the lender or holder has not received written notification of 

discharge within 12 months of the date that the borrower filed for 

bankruptcy, the lender or holder must contact the court and the 

borrower's attorney (if known) within 30 days to determine if the 

bankruptcy proceedings have been completed. If no response is received 

within 30 days of the date of these contacts, the lender or holder must 

resume its collection efforts, in accordance with paragraph (g)(1) of 

this section. If a written response from the court or the borrower's 

attorney indicates that the bankruptcy proceedings are still underway, 

the lender or holder is not to pursue further collection efforts until 

receipt of written notice of discharge, except that follow-up in 

accordance with this paragraph must be done at least once every 12 

months until the bankruptcy proceedings have been completed.

    (3) If, despite the lender or holder's compliance with required 

procedures, a loan subject to the requirements of paragraph (g)(1) of 

this section is discharged, the lender or holder must file a claim with 

the Secretary within 10 days of the initial date of receipt (as 

documented by a date stamp) of written notification of the discharge 

from the court or the borrower's attorney, in accordance with the 

procedures set forth in Sec. 60.40(c)(4). The lender or holder also 

must file with the bankruptcy court an objection to the discharge of the 

HEAL loan, and must include with the claim documentation showing that 

the bankruptcy proceedings were handled properly and expeditiously 

(e.g., all documents sent to or received from



[[Page 336]]



the bankruptcy court, including evidence which shows the period of the 

bankruptcy proceedings).



(Approved by the Office of Management and Budget under control numbers 

0915-0100 and 0915-0108)



[48 FR 38988, Aug. 26, 1983, as amended at 52 FR 749, Jan. 8, 1987; 57 

FR 28796, June 29, 1992]