Social Security Disability (hereafter referred to as “SSD”) overpayments are generally dischargeable in bankruptcy, providing such overpayments were not the product of fraudulent behavior by the recipient.
Overpayments generally occur due to poor communication with the Social Security Administration (hereafter referred to as “SSA”), the complexity of Social Security laws and the length of time it takes for SSA to process things relevant to your case.
All recipients are required to report changes in circumstances to the SSA that may affect their eligibility for benefits—the most typical scenario is an increase in income due to the recipient returning to work. Sometimes the recipient may not timely report the change in circumstances, while other times the recipient may timely report the change but the SSA might drop the ball and fail to update its records. Often the recipient is completely unaware that they are receiving too much benefit money. There also can be more nefarious reasons for SSD overpayments, such as faking a disability or not disclosing relevant work history, etc..
As there are no time limitations on when an overpayment can be assessed, a recipient can receive SSD benefits for years before the SSA assesses an overpayment and sends out a demand letter requiring full repayment within 30 days. Receiving such a letter can ruin one’s day!
Social Security overpayment claims are general unsecured debts that are entitled to no priority or special status in bankruptcy. Such debts are dischargeable in bankruptcy except in circumstances where the overpayments were obtained under false pretenses or by other fraudulent means.
In order to obtain a Bankruptcy Court non-dischargeability determination the SSA must commence an Adversary Proceeding and prove that the debtor either (1) knew they should not have been receiving the SSD payments, or (2) knew they were receiving larger SSD payments than they were entitled to. This is a steep burden for the SSA to meet. If it does appear the SSA will prevail in their Adversary Proceeding you can usually settle with them and enter into a repayment agreement with very manageable terms.
Discharging SSD overpayments will not jeopardize one’s right to receive their regular Social Security benefits, nor will it negatively impact one’s right to receive future SSD payments should their health deteriorate before reaching Social Security retirement age.
Receiving an SSA collection letter is not always grounds for panic, as such matters can very often be successfully addressed in bankruptcy. You should consider contacting Michael O’Leary at Hayward, Parker & O’Leary (845-343-6227) to discuss using bankruptcy as the tool to rid yourself of this debt.