Social Security benefits are well protected in bankruptcy. And that often means they’re protected even from Social Security.
Sometimes folks are overpaid by Social Security. It can happen routinely. You are on disability but beginning to work again. When you earn money, you report it to Social Security but, even if you are making too much, they continue to pay because the agency can’t stop paying instantly. The regulations are very complicated and it’s easy to end up owing Social Security without even knowing it — that’s an “overpayment.”
Overpayments can be discharged in bankruptcy, as long as you did not get the benefits through fraud or some other misconduct.
But what if you qualify for future benefits? You worked too much and were overpaid but now you can’t work at all and are entitled? Social Security will want to offset your future benefits to repay itself first. Outside bankruptcy, that’s allowed — it’s part of the deal to qualify for benefits in the first place.
Inside bankruptcy, most courts have long concluded that it is not allowed. Going back to a 1984 3rd Circuit case — Lee v. Schweiker — courts have usually ruled that bankruptcy “trumps” Social Security Administration’s right to offset benefits to get back an overpayment in the past.
Even though this has been fairly settled law since the 1980s, it seems that SSA doesn’t always read its law. Because in April, 2013 they asked Houston bankruptcy judge Letitia Paul to allow them to offset benefits anyway. And Judge Paul graciously read the law back to the SSA and told them no.
The real question is this: Why is the Social Security Administration still pursuing these issues so long after courts told them “NO!” in the first place?
Photo Credit: Public domain/Social Security Asmin.
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Last modified: June 25, 2013