Bankruptcy & Social Security Overpayment

I want to say a few words about whether a debt owing to the Social Security Administration for overpayment of benefits can be discharged in a bankruptcy.  Often it can be.

If you have received Social Security you know that several factors, many of them beyond your control, can affect whether you are eligible and for how much.  This is especially true of disability benefits.  A change in status can end your eligibility or reduce the amount. It’s all very complicated and hard to understand – especially if you are ill.

The Social Security Administration is a big and cumbersome organization that makes lots of mistakes.  Lots of times they pay benefits when they are not supposed to.  Often this happens because they can be very slow in processing information they receive from beneficiaries.  The impression I have is that most beneficiaries are very careful about complying with requirements that they report any change in their circumstances.  If you report the change and the benefits keep coming, most people would assume that the change didn’t make a difference.  Later, however, you may be shocked to receive a nasty letter from the Social Security Administration.  The letter claims that you have been overpaid and demands repayment.

Suddenly you have a very large debt to a federal government agency.  Nobody is more powerful. They might start withholding from the benefits you are still eligible for; they might seize your tax refunds; or they might even start garnishing your wages.  Most people assume that like the usual student loans and taxes, there is no way to make this go away.  This is what I assumed too the first time someone came to my office with one of these letters.

I was surprised to learn when I did a little research that many if not most of these Social Security overpayment claims can be discharged in bankruptcy.  When a debt like this is listed in a bankruptcy, it is going to be discharged unless the Social Security Administration successfully objects.  In order to figure out whether to expect an objection, it is helpful to check Social Security policies as published in their on line Program Operations Manual.  The guidelines as to when such an objection should be filed are in GN 02215.196 of  the manual.  They will object if they believe they can prove that the overpayment was a result of fraud or misrepresentation.

They use a three part test to define what they mean by misrepresentation.  There must have been 1) an overpayment caused by false representation, 2) made with the intent to deceive and 3) upon which the Social Security Administration relied to it’s detriment.

The typical person I see in my office who with one of these overpayment letters isn’t anywhere close to satisfying the above test.  This person hasn’t told any lies and certainly wan’t trying to deceive anybody.  There was no intent to cheat the government out of anything.  It was more a matter of just stumbling into the situation.  If this is where you find yourself, you might want to give me a call.  The chances that a bankruptcy can make the whole problem just go away are very good.

Bankruptcy by the Gallon: Time to Let Go of Old Closed Bankruptcy Files

dave-filesiiifilesvI’m not a paperless kind of guy.  Hard copies of everything in a file folder. That’s how I like to do things.  This of course means that I generate a lot of paper, and every few years I run out of storage space.  After a Chapter 13 or Chapter 7 case is completed, the discharge has been granted and the clerk’s office has closed the case, I move the file to a storage room in the back of my garage.  To me those files represent a lot of work, care, concern, blood and sweat.  Gosh I hate to get rid of them.  But a time comes when one has to let go.  One has to admit that those people really did get a fresh start, they don’t need me any more, and it’s really time to move on and let go – physically let go of the file.

proshred-truckSo it was with mixed feelings recently that I called Proshred, a locally owned shredding company near me.  Prior to their arrival on the appointed day, I spent probably at least 20 hours going through all my old files deciding what it was safe to shred and what I had better still keep.  I don’t remember for sure when I did this last, but I noticed right away that for the most part the oldest files I had dated from about 2006.  What I finally wound up with was a big pile of bankruptcy files ranging from about 2006 to about 2012 in the middle of my garage floor. There was no left room to park.

When the truck arrived as one would expect, the driver who was supposed to do all the loading work had just had back surgery.  He showed me the scar.  I was planning on helping him anyway, but it turned out to be more like he was helping me.  The files were moved from my garage to the truck using a full sized 64 gallon garbage can on wheels.  It took about eight trips.  I suppose that means I had about 512 gallons of files.  Never thought of measuring my work by the gallon before.

I could hear the shredding blades doing their work right there at the end of my driveway.  Kind of a strange or odd end to all that concern and pain I thought.  It was comforting to hear from the driver that the remains of the files were going to be recycled and would eventually be used to make new paper at a mill somewhere near Duluth.  As the truck pulled away I felt a bit of sadness, followed by a feeling of lightness and relief.

“Thank you” Recently Received from Client after Bankruptcy Discharge

During the holidays several of my clients received their bankruptcy discharge.  The discharge is a court order which states that the Debtor is no longer legally obligated to repay most if not all of  his or her debts.  In most cases the only debts that are not discharged are student loans and taxes.  Sometimes even taxes can be discharged, but that’s a topic for another blog post.

When that discharge comes out,  many of my clients thank me profusely.  For some reason I often have a hard time accepting thanks.  When I was growing up I think it was part of the culture to assume that when somebody was just doing their job, there was no need to thank  them.  And if somebody thanked me I tended to say “no need to thank me” or “it was nothing” or other similar words which more or less blew it off.  Later in life I learned that such responses diminish the importance of the gratitude being expressed and the person expressing it, and a simple “you’re welcome” is a much better way to respond.

Gratitude is one of the most noble of feelings and it should always be acknowledged – still it remains hard for me to do.  Even so, with the client’s permission I’d like to share with you the following somewhat poetic excerpt from an email I received from one of the clients who recently got that discharge:

“This is the best holiday present ever!
That difficult experience of the past few years can now finally be a ghost….So many sleepless nights.
Thank you David for helping us to straighten out our lives..
We still have a hard road a head to try to prepare for being too old to be employed…
It would have been impossible with the mess we were in and it is still a long shot but we do have better odds now.
You were our guiding light and we will always be grateful.
Many many thanks to you David, …….”

I tend to get a little emotional around the holidays anyway, but this email really touched me.

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