How to Deal with Social Security Overpayments in Bankruptcy

Imagine this nightmare of a scenario: You’re going through your mail and come across a letter from the Social Security Administration (SSA). 

That can’t be good, right? 

Then your heart sinks as you read the first few lines: “We have determined that you have received an overpayment of social security benefits in the amount of $10,000.”

You’re not sure how this happened, but there is one thing you’re sure of: There’s no way you can pay that back. You’re already struggling to make ends meet, and this overpayment adds insult to injury. 

What do you do now?

Navigating the legalities surrounding social security overpayments in bankruptcy proceedings can be complex, depending on their nature and the timing of filing bankruptcy. 

What Are Social Security Overpayments?

Receiving more social security benefits than you’re legally entitled is called overpayment. Most of the time, this happens due to changes in income or marital status or even to the death of beneficiaries. Receiving extra income while still receiving benefits is one of the most common causes of overpayment.

And you can be sure that the government cares about it. The SSA usually tries to recover any overpayment by reducing future benefit payments or demanding repayment from recipients.

These cases are rare; still, more than 70 million receive monthly benefits, so the occasional mistake is inevitable.

How rare?

Consider these statistics from the Social Security Administration’s most recent payment integrity report to the federal Office of Management and Budget (OMB) 

• In the 2021 fiscal year, Social Security paid out approximately $1.1 trillion in retirement, survivorship and disability benefits;
• Of that total, about 0.17 percent — or $1.8 billion – was made in overpayments to beneficiaries.

Social Security takes measures such as sending regular earnings statements and conducting annual reviews to reduce overpayments to ensure beneficiaries receive correct amounts. 

Unfortunately, mistakes still happen, and if you find yourself in a situation where you have received social security overpayments that you are unable to repay, filing for Chapter 7 bankruptcy may be an option. 

That said, not all debts are dischargeable in a Chapter 7 bankruptcy, including taxes, student loans, and child support.

The Chapter 7 Bankruptcy Nickel Tour

With Chapter 7 bankruptcy, a trustee is appointed to sell the assets that the person filing for bankruptcy cannot keep, and the money made from selling those assets is given to creditors. This process usually takes a few months. Afterward, most of the person’s remaining debts are forgiven, meaning they no longer have to repay them.

And it can be an invaluable way to address debt problems.

But it’s also not a magic debt wand, as taxes, student loans and child support typically aren’t discharged. The same goes if you’ve secured debt such as car loans or mortgages – you’ll likely need to continue making payments to protect those assets.

To qualify for Chapter 7 bankruptcy, you’ll have to pass a means test that measures your income against an income threshold that varies by state and household size. 

But filing should not be taken lightly because it can have long-term repercussions – starting with your credit score. 

That said, you may have few options if you’ve been receiving social security overpayments and don’t have the means to repay the amount.

Are Social Security Overpayments Dischargeable in Bankruptcy?

Under the Bankruptcy Code, debts arising from fraudulent conduct, willful and malicious injury, and other debts are not dischargeable in a Chapter 7 bankruptcy. 

So, what about social security overpayments?

Although they don’t specifically fall within that criteria, courts have typically found them not dischargeable since they still represent debts owed to the government for the public good. Generally speaking, debts to any government unit or agency – including the SSA – are not discharged in these situations either.

In other words, you probably can’t get out of overpayments if you’re going through bankruptcy.

Exceptions to the Rule

There are, of course, some exceptions. 

For example, if the overpayment was a mistake by you or the SSA and there was no willful intent to defraud or evade taxes, it may be eligible for discharge.

Plus, debtors who can show that repaying the overpayment would impose an undue hardship may qualify for debt discharge under Chapter 13 bankruptcy law. As this standard can be challenging to meet, debtors should seek advice from a bankruptcy attorney.

Finally, timing plays a big part, too. Payments made over three years before bankruptcy could be dischargeable in certain instances.

Not sure what to do?

Social security overpayments are generally not dischargeable in a Chapter 7 bankruptcy, save for a few notable exceptions. If you’re considering filing and have questions about whether your social security overpayment can be discharged, consult the Van Horn Law Group for guidance.