Are you using debt setoff?

I recently completed a business review for a utility with considerable outstanding unpaid debt. When I asked if they were participating in the state’s debt setoff program, they were not. Let’s look at why that may be a mistake.

What is debt setoff?

Debt setoff is the process of attaching state income tax refunds, and in some cases lottery winnings, to pay unpaid public debts. In most states with a debt setoff law, local governments (and some public utilities) are able to file claims with the state. Any state income tax refund due to the delinquent utility customers with be deducted from their refund or lottery winnings and sent to the utility to satisfy the outstanding debt.

Where is this available?

I am most familiar with debt setoff programs in North Carolina, South Carolina, and Virginia from having worked with utilities in those states. A search of the internet indicates that Arkansas, California, Illinois, Indiana, Kansas, Mississippi, and Wisconsin also have debt setoff programs. There may be other states with programs and, if you know of one, please email me to let me know.

If you work for a public utility in one of these states with a debt setoff program and you’re not participating in the program, I encourage you to do so!

How successful is it?

The North Carolina Debt Setoff Clearinghouse website has some excellent statistics about how much has been collected and what entities participate. Since the inception of the program, 80 entities have collected more than $1,000,000 each. I would call that very successful!

How can my utility participate?

If your utility is located in a state with a debt setoff program and you don’t participate, do an online search to find out how to get started. Generally, it’s a fairly straightforward process to get started.

What if my state doesn’t have a program?

If your state doesn’t have a setoff debt program, contact your state’s municipal or county association or rural water association to lobby your state legislators on your behalf.

What if my state doesn’t have a state income tax?

First of all, let me just say I’m jealous! Unfortunately, if your state doesn’t have a state income tax, you’re not going to be able to avail yourself of a debt setoff program.

Trying to get a handle on outstanding bad debt?

Does your utility have considerable outstanding bad debt? If you do, please give me a call at 919-673-4050 or e-mail me at to find out how a business review could help you formulate a plan to collect it.

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© 2023 Gary Sanders


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