Is a Social Security Overpayment Dischargeable in Bankruptcy?

This scenario is unusual, but it can happen. A person will file for disability payments from the Social Security Administration (SSA). Payments come in, and the recipient deposits them. Sometimes, the person’s health improves or he or she returns to work. At this point, the claimant is no longer eligible for disability, and Social Security should terminate the payments; however, like all institutions Social Security isn’t perfect, and for some, the payments will continue coming in when they shouldn’t. This can go on for quite a long time regardless of whether the claimant knows it should have ended. The continued payment after eligibility ceases is called “overpayment.”

When the SSA thinks it has been overpaying someone, it will send a letter to the claimant that does a few things.

(1) It will explain why it thinks if overpaid the claimant.

(2) It will demand its money back.

(3) It will inform the claimant that he or she can demand a review to contest the SSA’s demand for its money.

(4) It will inform the claimant that he or she can request a full or partial waiver for repaying the SSA.

Generally, the SSA does not approve waivers, which may leave claimants on the hook for very large sums of overpayments they are required to return to the government. Occasionally, this can grow into tens of thousands of dollars. If the money no longer exists, can claimants file bankruptcy?

Yes. The bankruptcy code does not protect the Social Security Administration from debtors. If this has happened to you, depending on your other circumstances, you could file a Chapter 7 bankruptcy, list the Social Security Administration as a creditor and include the overpayment amount it is claiming, and obtain a discharge from the bankruptcy court.

There is one caveat: It’s possible that the SSA will object to the dischargeability of your overpayment if it believes you either accepted the overpayment dishonestly under “false pretenses.” In practice though, the SSA does not do this very often, though it may in the future. If you received a letter like this from the SSA, and you do not have the money to pay it back, contact an experienced bankruptcy attorney to consider your options.

For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Freedom Law Firm Las Vegas bankruptcy attorney for a free initial consultation by calling 702-903-1354.