Social Security Overpayments and Bankruptcy

July 21, 2021

Can You File Bankruptcy on a Social Security Overpayment?

Can you discharge an overpayment of social security benefits in bankruptcy?  The answer to this question is generally “yes.”  You can discharge social security overpayments in bankruptcy.  Therefore, in many cases, it would be advisable to file for bankruptcy relief especially if there are also other substantial debts you are up against.  However, it is important to know that there are some rules and issues that could come up in certain cases.   In certain cases, you may have problems getting rid of social security debt.

Certain Social Security Overpayments May Be Non-Dischargeable

If a debt is “non-dischargeable” in bankruptcy, that simply means that you cannot make it go away by filing a bankruptcy case.   An overpayment of social security can be held to be a non-dischargeable debt usually only in cases of fraud.   For instance, if fraud can be proved with a social security overpayment, then the debt could be held to be non-dischargeable.

For example, a person who continued to take Social Security payments from a dead relative’s account would probably not be able to discharge the debt.  This is a clear case of fraud because a normal person would clearly understand that they are not entitled to cash checks or receive payments made out in someone else’s name.

However, a case where a person makes too much money to continue to receive Social Security Disability – a case like this may be a little bit more unclear.   The Social Security Administration would likely need to prove that the recipient clearly intended to fraudulently accept payments.   The Social Security Administration would likely be required to file an adversary case in the bankruptcy objecting to the discharge of the debt.

Social Security: The Sole Holder and Administrative Judge

Another practical problem is that the social security system is in complete control of how you receive your future benefits.   They are the sole system in which you can generally file a complaint or appeal.    They are the sole holder of your social security money and the sole judge as to whether you will continue to benefits.   This can quickly bring economic chaos to a person who has relied on social security benefits in the past.

The Social Security Administration will sometimes “pay your debt for you.”  They will start “repaying” the debt by taking some or all of your future benefits for a couple of years.    For instance, in cases where social security disability is overpaid, they may take the same amount back out of your later retirement benefits –even years later!   Your primary recourse is then to file an appeal with the Social Security Administration.    Even after bankruptcy, the Social Security Administration can file a complaint to deny your discharge.

Social Security Administration Overpayment and BankruptcyDealing with these government entities can be difficult.  They are not like dealing with a creditor who is attempting collection through state courts.  They, instead, already have complete control over your future benefits and the judicial process.   Sometimes people are forced into bankruptcy just because the SSA repayment requirements end up taking most or all of their monthly benefits.  Then, they may even find themselves out-matched in a bankruptcy court proceeding where one government entity appeals to another for denial of a bankruptcy discharge.  These are some practical considerations when deciding whether to file bankruptcy due to Social Security debts.  Sometimes, it is just easier to let the debt be repaid, especially if you are not dealing with other substantial debts.

Find out more information about Chapter 7 bankruptcy.


FREE Consultation – Get Debt Free!

Fill out the form below or Call (317) 769-2244 Today!