Can you discharge social security overpayments?

I’ll tell you something you probably know: government is big, and sometimes, difficult to communicate with. I won’t pick on certain departments, but we will briefly discuss the SSA and the issues that commonly arise when dealing with SSDI benefits and bankruptcy.

Does this sound familiar to you? The SSA kept sending you the disability checks even after you notified them of your new job. Several months later you get a letter in the mail explaining that they will pursue you for the overpayments. One rising question my office receives is whether these social security overpayments can be discharged in bankruptcy.

Bottom line: Yes, absent fraud or other conduct prohibited by 523(a)(2)(A)*, and it is best to have a paper trail that shows that you attempted to inform the SSA of your change of circumstances prior to cashing the checks. Neavear v. Schweiker, 674 F.2d 1201 (7th Cir., 1982)

*You cannot discharge debt: “(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by— (A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition; (B) use of a statement in writing— (i) that is materially false; (ii) respecting the debtor’s or an insider’s financial condition; (iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and (iv) that the debtor caused to be made or published with intent to deceive.”

Can they recoup my benefits after I file bankruptcy to recover the overpayments?

A “recoupment’ is a very specific legal term that allows a creditor to “recoup” payments accidentally made that arise out of the same contract. In re Photo Mechanical Services, Inc., 179 B.R. 604, (Bkrtcy.D.Minn 1995). The SSA would violate the automatic stay if they attempted to offset your benefits during your Chapter 13 plan. However, the SSA may “recoup” the overpayments if you will receive SSDI benefits anytime after your discharge, by deducting the overpayments from future benefits.

The preceding analysis is very similar for unemployment benefit overpayments. Bankruptcy best helps those that have overpayments that are no longer eligible for those benefits in the foreseeable future, provided the benefits were not obtained by false pretenses or fraud. It is always best to notify your benefit providers of a change in circumstance to avoid receiving the overpayments, if possible. However, there are plenty of cases out there that deal with this issue which reminds us that our government agencies sometimes can’t keep up with change, even when we inform them otherwise.