Disability overpayment and Chapter 7 bankruptcy?

Recently on our legal forum a user asked, “I had a severe back condition, COPD, and depression for several years. I attempted to go back to work. I somehow generated about $10,000 in a disability overpayment. I tried to get the SSDI to waive the disability overpayment charges but was unsuccessful. My husband has also lost his job and we have about $30,000 of credit card debt. Can a bankruptcy discharge my disability overpayment?”

What is disability overpayment?

Social Security Disability overpayments can occur for a variety of reasons. The most common reason, however, occurs when a disability recipient attempts to return to work. Although they have a program which allows recipients to return to work on a trial basis, referred to as the Trial Work Period, the program is a bit complicated, and it’s not unusual for some claimants to work too long or earn too much money, resulting in SSDI overpayments.

What’s more, the SSA is generally overworked, undertrained, and inefficient, which means they routinely lose files or fail to process information in a timely manner, also resulting in SSDI overpayments.

What happens if there is an SSDI overpayment?

If the SSA believes they have overpaid your disability payment they will send you a notification letter demanding payment. While there is a process to challenge the disability overpayment, the SSA is likely to deny the waiver, leaving claimants with hundreds or thousands of dollars which the SSA expects them to repay.

Considering that many disability recipients have limited income and cannot work, repaying the overpayments may be impossible.

Can the SSDI payment be discharged in Chapter 7 bankruptcy?

So what happens to your SSDI payment if you decide to file for Chapter 7 bankruptcy? Assuming you qualify for Chapter 7, most unsecured debts can be discharged. The good news is both the Bankruptcy Code and Social Security laws do not specifically protect SSDI payments.

Now, this does not mean you will receive an automatic discharge. In fact, the SSA has the right, under Section 523 of the Bankruptcy Code, to contest the discharge. Reasons the court may grant the waiver can include dishonest conduct on the part of the SSDI recipient or behavior the court deems “repugnant.”

Most disability lawyers report they do not see the SSA contest too many disability overpayment discharges in a bankruptcy case, but this does not meant they legally do not have the right to so. In fact, if the SSA believes that you have committed fraud or attempted to illegally collect benefits they would have every right to contest the discharge.

Although this type of fraud argument is unlikely to prevail in your particular case, it could prevail in a case where, for example, a son intentionally cashed the SSDI check of their deceased parent.

Bottom Line:

The SSA has the legal right to contest a disability overpayment discharge in a Chapter 7 bankruptcy, but they are unlikely to take this step unless they believe fraud has been committed.

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Beth

Beth L. has been a contributing writer to websites since 2008. She has a background in Business Management and Management Information Systems and graduated from the University of Texas in 1996. Now she specializes in content development for legal entities for issues regarding bankruptcy, personal injury and Social Security Disability law.
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About Beth

Beth L. has been a contributing writer to websites since 2008. She has a background in Business Management and Management Information Systems and graduated from the University of Texas in 1996. Now she specializes in content development for legal entities for issues regarding bankruptcy, personal injury and Social Security Disability law.