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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,” i.e. it’s claiming you were lying. In practice, the SSA doesn’t do this, though 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

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