Discharging Social Security Overpayments
As a general rule, people tend to think that debts that are owed to the federal government cannot be discharged. While that is true of some federal debts, that isn’t true of all of them. One area where debts owed to the government can be discharged is with Social Security overpayments.
How do Overpayments Happen?
In many cases, Social Security recipients get more money than they are entitled to get. Sometimes this happens because of an honest clerical error, which may not even be the recipient’s fault, and sometimes it happens because of an intentional misrepresentation. Often, the recipient may not even know that he or she is receiving too much money. Either way, at some point Social Security is going to recognize the error, and ask to be repaid.
Unfortunately, most people on Social Security are in no position to repay substantial amounts of money. And if an overpayment is not repaid, Social Security can resort to things like garnishments, or lawsuits, and they will often do just that especially if the overpayment went on for a number of years and there is a substantial dollar figure owed.
Overpayments Can Be Discharged
The good news is that overpayments to the Social Security Administration are dischargeable in bankruptcy. All you have to do is list the Social Security Administration as a creditor the way you would do with any other creditor. Furthermore, discharging overpayments won’t affect your Social Security going forward. They cannot reduce future payments to pay themselves back for the overpayments that you discharged in bankruptcy.
Exceptions to Dischargeability
There is only one instance where overpayments cannot be discharged, and that’s where the debtor intentionally committed a fraud against Social Security to get increased payments. Not only must social security show that there was a false statement or a fraud by the debtor, but the false statement must have been made in writing.
Other instances of fraud are where the recipient is or was working while getting social security, without reporting it to Social Security. In some cases, the court will require Social Security to prove that the recipient (the bankruptcy debtor) was aware of the obligation to report increased income. Some debtors are aware, and others are not.
Generally, Social Security will have to show some kind of blatant, intentional and obvious fraud to deny the discharge.
In order to recoup the Social Security payments in bankruptcy, the Social Security Administration has to file what is known as an adversary proceeding. That means they have to actively intervene in the bankruptcy and file a lawsuit within the bankruptcy, to challenge the dischargeability of the debt. While possible, this does not happen often.