When the Social Security Administration Is a Creditor in Your New York Bankruptcy…

It doesn’t happen often, but when it does people don’t complain: sometimes, Social Security overpays recipients.

How can this happen?  Here’s a possible scenario:

A person files for disability payments from the Social Security Administration (SSA). The payments come in, and the person, now the recipient, deposits them. The recipient’s health improves, allowing him or her to work again. Once the recipient resumes working, though, SSA should terminate its payments as the recipient is no longer eligible. However, like many bureaucracies, SSA is imperfect, and it may continue making the payments nonetheless. These payments to a recipient who is no longer eligible are called “overpayments,” which the recipient does not have a legal claim to.

Once the SSA realizes it’s overpaid someone, it’ll send a letter to the recipient stating a few things: why it believes it overpaid the recipient, a demand for its money back, notice that the recipient can demand a review to contest the SSA’s demand for its money back, and notice that the recipient can request a full or partial waiver for repaying the SSA. As to the last point, the SSA rarely approves waivers, and this sometimes leaves recipients on the hook for very large amounts of money in Social Security overpayments.

When this sum grows beyond the recipient’s savings, can the recipient discharge the overpayment in bankruptcy?

Short answer: Yes.

The bankruptcy code does not mention the SSA as a special or protected creditor. If this happened to you, you may be able to file a Chapter 7 bankruptcy, and all you would have to do is list the SSA as a creditor and include its demand for its overpayment as a liability. This debt isn’t secured, so it’s dischargeable.

Unfortunately, there’s a catch. The SSA can object to the dischargeability of an overpayment if it believes the recipient accepted the overpayment under “false pretenses.”  In other words, it can claim you were lying. In practice, the SSA doesn’t do this — but there’s nothing stopping it from changing its present policy. That said, if you received a letter from the SSA claiming it overpaid you and that it wants its money back, seriously consider consulting an experienced New York bankruptcy attorney.

For more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy attorney Brooklyn NY Bruce Weiner for a free initial consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA

Recent Posts

Stay Clear of Payday Lenders, Bankruptcy Is So Much Safer

For too many people, bankruptcy feels like giving up. Choosing other, riskier options may make them feel as though they’re still in control, and who knows? Maybe things will turn around for them. They run down their savings, rely on credit cards, and then as a last resort make a visit to a payday lender.

Read More »

How to Deal with “Zombie Debt” Collectors in New York

At some point, if it believes it will never be repaid, the original bank that makes a loan will sell it to a debt collection company. The loan will be bundled with numerous other ones in the sale, and the price will be a fraction of the total value of the loans. Because of the small

Read More »

How to Use Bankruptcy to Reduce Auto Loan Payments in New York

Many New Yorkers have difficulty with auto loans. In some cases, the car’s value has depreciated significantly, making resale difficult, and in others the car was over-financed to begin with, which is more common when the dealership plays the role of lender as well. Unlike the underwater mortgage, the bankruptcy code offers solutions that are

Read More »

4 Steps to Escape Paying Income Tax on Discharged Debt in New York

Receiving a discharge from the bankruptcy court  in New York is the goal of New York bankruptcy petitioners. It should be a relief so that people can continue their lives. Although, occasionally creditors claim the loans you discharged are forgiven instead; that means you’ll have to pay income tax on the forgiveness. What does this

Read More »

Pop Quiz on Discharging Unsecured Debt in New York

This quiz has a single multiple choice question. Suppose you have more credit card debt than you can pay down?  This is not an uncommon situation—but let’s add a twist: one of your creditors is a family member. The debt situation cannot be resolved without bankruptcy, but you don’t want to create discord among your

Read More »