Can Social Security Disability Overpayments Be Discharged in Bankruptcy?

Disability overpayments are discharged in bankruptcy except when they were obtained by fraud.

Question

I have been on disability for ten years for COPD, stenosis, and major depression and two months ago Social Security sent me a letter saying I owe them $9,500 in overpayments. I began to work part-time last year but quit after four months because I couldn't handle the schedule. A rep at the Social Security field office had told me my work would fit under the trial work program, so I wouldn't lose my SSDI benefits.

I filed a request for waiver for the overpayments with Social Security but it was denied. I also owe about $20,000 on two different credit cards. I feel I have no choice but to file for bankruptcy. Will the Social Security overpayments definitely be discharged in a Chapter 7 bankruptcy?

Answer

Disability overpayments that Social Security is trying to collect from you are usually dischargeable in bankruptcy. However, there is an exception to this rule for money that is fraudulently obtained from Social Security. If Social Security believes you accepted the overpayments (cashed the checks) knowing you weren't entitled to them, Social Security is likely to object to the discharge in bankruptcy court. Social Security isn't likely to successfully object to the discharge in most cases of overpayment, but in clear cases, like when someone cashes his deceased parent's Social Security check or when someone obtains a Social Security number fraudulently, the overpayment is very unlikely to be discharged. For more information, see Nolo's article on Discharging Social Security Overpayments in Bankruptcy.

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