Can I Discharge my Social Security Disability Overpayment in a Bankruptcy?

In my law practice, I handle both Social Security disability cases and consumer bankruptcy matters.   As such, I regularly get calls from other attorneys and potential clients about issues where these two practice areas overlap.

One of the most common questions I get has to do with the question of whether a Social Security disability overpayment may be discharged in a bankruptcy.  Overpayments occur when disability claimants continue to receive benefits even when they have returned to work or are otherwise not eligible for payment.

Often, the person receiving the payment does not know that he/she is not eligible.  Social Security has a number of programs designed to encourage disabled claimants to return to work, and most of these programs provide for several months of continuing disability payments while a claimant tries to return to work.

To call Social Security’s return to work programs confusing would be an understatement.   For example a disabled person can attempt to work during a “trial work period” of up to 9 months during which time he will continue to receive his full disability benefit.   A trial work month is one in which  you earn more than a designated amount (in 2009, this amount was $700, in 2010 and 2011, it is $720).   If you work 9 or less trial work periods in any 5 year period, your ongoing benefits are not at risk.  If you exceed 9 trial work months, then you may be cut off.

Sometimes, a disabled person may exceed his/her trial work months and not realize it.  In other instances a person may return to work but continue to receive direct deposit from Social Security, but not realize that these disability payments are incorrect.  Other people know that they should not be receiving benefits when they return to work but they need the money.

In any case, there is nothing in either the bankruptcy law or the Social Security law that prevents a Social Security disability overpayment from being discharged.   The Bankruptcy Code does allow creditors (i.e. the Social Security Administration) to object to the discharge of a debt if there was fraud or “false pretenses” – so a claimant who knowingly accepts disability payments improperly could still face a challenge, although I have never personally seen SSA object to discharge of a debt in a claimant’s bankruptcy.

This dischargeability issue came up in a recent case decided in the Northern District of Georgia in which the judge denied the debtor’s request to have the merits of the overpayment dispute heard in bankruptcy court.   Perhaps in an effort to forestall further litigation, the judge noted in dicta (observation) that Social Security overpayment debt is dischargeable absent some affirmative step by SSA to prove fraud.

The judge roundly criticized Social Security for failing to follow its own administrative procedures in considering the claimant/debtor’s attempt to secure a waiver of overpayment.   I wonder if SSA’s tendency to ignore its own administrative rules would benefit the debtor in a dischargeability action that SSA might raise in some future case.