Discharging Social Security Overpayments in Bankruptcy

If the Social Security Administration (SSA) accidentally pays you more retirement or disability benefits than you are entitled to, it can come after you to collect the overpayment. Essentially, a Social Security overpayment is a debt you have to pay back. But like most debts, absent fraud, Social Security overpayments are typically dischargeable in bankruptcy. Read on to learn more about whether you can discharge Social Security overpayments in bankruptcy.

(Learn more about the bankruptcy discharge.)

What Is a Social Security Overpayment?

The SSA is tasked with processing a large number of payments ranging from disability to retirement benefits. Due to the complexity of Social Security laws and the large volume of payments issued, overpayments and mistakes are common. Most overpayments occur because people lose their eligibility for disability or other benefits (typically when they get well enough to return to work) but still continue to receive checks from the SSA.

In most cases, people are not actually aware that they are being overpaid. Most people promptly notify the SSA when they return to work or experience a change that may affect their Social Security benefits. However, if payments continue, they erroneously believe that they still qualify to receive those benefits. As a result, most people are shocked and unprepared when they receive a letter from the SSA demanding repayment of the overpaid amount (which can be substantial).

(For more articles on Social Security and Social Security Disability, visit our Social Security Center.)

Social Security Overpayments Can Be Discharged in Bankruptcy

Just because you owe a debt to the federal government does not mean that you can't discharge it in bankruptcy. Certain debts owed to the government, such as recent unpaid taxes or criminal fines, are nondischargeable in bankruptcy. But a Social Security overpayment is not one of them.

In bankruptcy, Social Security overpayments are treated as unsecured debts similar to credit card debt and medical bills. So if you are unable to pay back your Social Security overpayment, filing for bankruptcy relief can allow you to discharge your obligation to the SSA. However, keep in mind that the SSA has the right to object to your discharge if it believes you were committing fraud by accepting the additional payments.

The SSA Can Object to Your Discharge if You Commit Fraud

Debts acquired by false pretenses or other fraudulent means can't be discharged in bankruptcy. If a creditor believes that you committed fraud (such as providing false information on a credit application) when you obtained the debt, it can file a complaint (called an adversary proceeding) in your bankruptcy to have the debt declared nondischargeable. (Learn more about bankruptcy adversary proceedings based on fraud.)

Just like your other creditors, the SSA has a right to object to your discharge. But fraud is typically very difficult to prove in bankruptcy. So the chances that the SSA will object to your discharge are slim. However, if the SSA believes you accepted payments knowing that you were not entitled to them, it may have more incentive to file an objection to your discharge.

If you received a large Social Security overpayment and are not able to pay it back, consider talking to a knowledgeable bankruptcy attorney in your area to discuss all of your options.