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 must pay back.

But like many debts, Social Security overpayments are typically dischargeable in bankruptcy when fraud isn't involved. Read on to learn whether you can discharge Social Security overpayments in bankruptcy.

What Is a Social Security Overpayment?

The SSA processes 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 disability eligibility or other benefits but continue to receive checks from the SSA, typically when they get well enough to return to work.

Who Is Responsible for a Social Security Overpayment?

In most cases, people are not 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, many erroneously believe they still qualify for 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).

Social Security Overpayments Can Be Discharged in Bankruptcy

Just because you owe a debt to the federal government doesn't mean 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 like credit card debt and medical bills. So if you can't 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 when you obtained the debt, it can file a complaint called an "adversary proceeding" in your bankruptcy and ask the court to declare the debt nondischargeable. If the creditor wins, the filer remains responsible for the debt after bankruptcy because it isn't included in the debt discharge.

Like your other creditors, the SSA can object to your discharge. However, proving fraud can be difficult 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 might have more incentive to file an objection to your discharge.

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

Learn more about Social Security and Social Security Disability.