Can You File Bankruptcy on Social Security Overpayment?

Social Security overpayments occur when the Social Security Administration (SSA) pays a recipient more benefits than they were entitled to receive. These situations often arise due to changes in income, living arrangements, or administrative errors, leading the SSA to demand repayment. Receiving an overpayment notice can be a source of significant stress and financial concern for many individuals who rely on these benefits for their daily living expenses. This article explores whether bankruptcy offers a solution for Social Security overpayments and details other direct options available through the SSA to address such debts.

Dischargeability of Social Security Overpayments in Bankruptcy

Social Security overpayments are generally considered dischargeable in bankruptcy, offering a potential path to relief for individuals facing these debts. Unlike certain other government debts, such as recent taxes or specific fines, Social Security overpayments are typically treated as unsecured, non-priority debts. This means they are often handled similarly to credit card debt or medical bills within a bankruptcy proceeding.

Individuals primarily utilize two types of bankruptcy: Chapter 7 and Chapter 13. In a Chapter 7 bankruptcy, many unsecured debts are eliminated, or “discharged.” Social Security overpayments can be discharged in Chapter 7, provided there was no fraudulent behavior on the recipient’s part in obtaining the overpayment. Chapter 13 bankruptcy involves a repayment plan over three to five years, where the debtor repays a portion of their debts based on income and expenses. Social Security overpayments are included as unsecured debt in these plans.

While generally dischargeable, circumstances surrounding the overpayment can influence the outcome. If the SSA believes the overpayment resulted from intentional fraud, such as knowingly providing false information or failing to report changes that would affect eligibility, they can object to the discharge in bankruptcy court. However, the burden of proving fraud rests with the SSA, requiring them to initiate an adversary proceeding within the bankruptcy case. Objections are relatively rare unless clear evidence of deliberate misrepresentation exists.

Effect of Bankruptcy on Social Security Benefits

A common concern for individuals considering bankruptcy is whether filing will jeopardize their ongoing Social Security benefits. Filing for bankruptcy, whether Chapter 7 or Chapter 13, generally does not affect a person’s eligibility for or the amount of their ongoing Social Security benefits. These benefits are typically protected from creditors under federal law, as they are considered exempt assets in bankruptcy proceedings.

This protection ensures beneficiaries retain their means of support, even when facing significant financial hardship. While Social Security income must be disclosed when filing for bankruptcy, it is usually excluded from calculations like the “means test” that determine eligibility for Chapter 7 or the repayment capacity in Chapter 13. However, it is advisable to keep Social Security funds in a separate bank account to prevent them from being commingled with other funds, complicating their protected status.

Other Ways to Resolve Social Security Overpayments

Beyond bankruptcy, individuals have several direct avenues to address Social Security overpayments with the Social Security Administration. These options focus on reviewing the overpayment decision, requesting forgiveness, or establishing a manageable repayment schedule. Understanding the criteria and information required for each can help recipients navigate these processes effectively.

Reconsideration

Reconsideration is a request for the SSA to review its initial overpayment decision. This option is for recipients who believe they were not overpaid or the amount is incorrect. Individuals must present evidence challenging the SSA’s findings, including new documentation, clarification of facts, or explanation of why the original decision was flawed. Requests must typically be filed within 60 days of receiving the overpayment notice. Prompt filing can prevent SSA recovery during review.

Waiver

A waiver allows an individual to request that the SSA forgive the overpayment. To be granted a waiver, two criteria must be met: the overpayment was not the individual’s fault, and recovering the overpayment would either defeat the purpose of Social Security or be against equity and good conscience. No fault often involves showing the SSA made an error or the individual was unaware of reporting requirements. Proving “defeats the purpose” or “against equity and good conscience” requires detailed financial information (income, expenses) to show repayment would cause significant financial hardship by depriving them of funds needed for ordinary and necessary living expenses. There is generally no specific deadline for filing a waiver request.

Repayment Plan

If reconsideration or a waiver is unsuccessful, or if the individual agrees to the overpayment, a repayment plan with the SSA is an option. This allows repayment over time in manageable installments, rather than in a lump sum. The SSA considers the individual’s financial situation, including income, expenses, and ability to pay, and individuals can propose an affordable monthly payment. The SSA prefers repayment within 12 to 60 months, but longer plans are negotiable based on financial circumstances. This prevents the SSA from withholding full benefits until the overpayment is satisfied.