When you file any type of bankruptcy, the end goal is usually to obtain a discharge, which is a court order eliminating your personal liability on many types of debt. Some types of debts are not dischargeable in bankruptcy, particularly certain debts owed to the government, like income taxes. However, Social Security overpayment is a dischargeable debt.
What Is Bankruptcy?
Bankruptcy is a court case you can file in the federal bankruptcy court to stop creditors from trying to collect on your debts. If you do everything you're supposed to do in the case and you meet the requirements, the court will enter an order of discharge and close the case. How long this takes and what types of debts are discharged depends upon the type of case you file and whether you've filed in the past, and when.
Types of Bankruptcy
Individuals can file bankruptcy under Chapter 7, Chapter 11 or Chapter 13 of the Bankruptcy Code. Businesses can file either Chapter 7 or Chapter 11, and family farmers or family fishermen can file under Chapter 12. Even cities can take advantage of bankruptcy by filing a Chapter 9 municipal case, although it's extremely rare. In most cases, the end goal is the discharge for those who qualify.
The Bankruptcy Discharge
An individual can receive a bankruptcy discharge in Chapter 7, Chapter 11 or Chapter 13. Businesses only receive a discharge in Chapter 11 cases; there is no discharge for a business that files Chapter 7 because the business no longer exists at the end of the case.
The discharge does not make your debts disappear. Rather, it gets rid of your liability on the debts. If you have a co-signer or co-borrower, that person will still be responsible unless he files bankruptcy, too. Some debts aren't dischargeable at all.
Non-Dischargeable Debts in Bankruptcy
The bankruptcy discharge does not apply to all debts. Debts you incurred through fraud or because of injury you caused to someone else may not be dischargeable if the creditor takes action in your case to seek a court order to that effect. You also cannot discharge domestic support obligations, such as child support and alimony. Student loans are only dischargeable if you can show a certain level of hardship.
Debts for certain taxes owed to the IRS or to your state government are not dischargeable. Because of the nondischargeability of income taxes and other governmental debts, many people wonder whether Social Security overpayment debt can be discharged and, fortunately, it can.
What Is Social Security Overpayment?
Social Security benefit payments are based upon specific formulas and depend upon your circumstances, whether you receive Social Security disability or simply receive your retirement income. Sometimes if you receive benefits and your situation changes, such as a return to work or a doctor's clearance, the SSA may accidentally keep paying you your benefits as if nothing happened, and you may accept the payments not realizing they should have been reduced or stopped altogether.
The money you receive in excess of your qualifications are overpayments, and when the SSA realizes the mistake, they will demand that you repay that money.
Dischargeability of Social Security Overpayment
Social Security overpayment is a debt owed to a government agency. For example, if you've been receiving $1,000 per month in Social Security disability but then fully recover and go back to work, the payments should stop. If they keep coming for six months due to an error at the SSA, you'll find yourself with a $6,000 bill from the government.
Unlike income taxes, payroll taxes and certain other types of debts, Social Security overpayment is dischargeable in bankruptcy. If you file a bankruptcy case, you must list the Social Security Administration as a creditor, and the SSA will be treated as a general unsecured claim in your case. If you receive a discharge, you will no longer be obligated to repay it.
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Rebecca K. McDowell is an attorney focused on debts and finance. She has a B.A. in English and a J.D. She has written finance and tax articles for Zacks and eHow.