Discharge Bankruptcy and Overpayment of Social Security Benefits

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If you have been overpaid Social Security benefits and are embarking on Chapter 7 (discharge) bankruptcy, you are probably wondering whether your Social Security overpayments can be discharged. The line between what debts are and aren’t dischargeable in Chapter 7 bankruptcy is often blurry, and whether overpayment of Social Security benefits is dischargeable is no exception: in some circumstances, Social Security benefits overpayment can be discharged, and in other circumstances, it can’t.

Overpayment of Social Security Benefits

Generally, an overpayment of Social Security benefits occurs when (1) the recipient of those benefits has gone back to work and continues to receive those benefits despite having returned to work; or (2) the recipient is otherwise not entitled to Social Security benefits -- and continues to receive payments -- for whatever reason deemed appropriate by the Social Security Administration.

Unsecured Debt and Dischargeability

Social Security benefit overpayments are treated as “unsecured debt,” meaning that there is no collateral for the creditor to take when you become delinquent. on the debt .An illustration of a secured debt is a car loan. A car loan is a secured debt, because the creditor can take possession of the car if your car loan becomes delinquent. In Chapter 7 bankruptcy, many unsecured debts -- such as credit card debt and medical bill -- are dischargeable, and Social Security benefit overpayments are no exception.

Fraudulent Conduct

There are a number of circumstances that render unsecured debt -- and more specifically, Social Security benefit overpayment -- non-dischargeable. The most common circumstance that will block the discharge of Social Security benefit overpayment is fraudulent conduct. If the recipient knowingly continued to receive the overpayments, and intended to deceive the Social Security Administration, a bankruptcy judge may not allow the overpayments to be discharged.

Good Faith

In many cases, if the debtor seeking to discharge Social Security benefit overpayments can show that he, in good faith, took steps to resolve the overpayment issue with the Social Security Administration prior to filing for bankruptcy, the bankruptcy judge will allow the debt to be discharged.