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Bankruptcy can discharge an overpayment of SSA and other
Filing a bankruptcy can discharge the overpayment of SSA or insurance benefits, unless there is fraud. SSA or the insurance company has the burden to prove that the recipient committed fraud or misrepresentation in obtaining the benefit, but rarely does so.
But – see exceptions: Recoupment – SSA versus Long term disability insurance
However, although the person’s personal liability to the overpayment is discharged, depending on if it is the SSA or insurance and whether or not there is a right to continue to receive such benefits, the ability for “recoupment” may become an option. Recoupment is an “equitable defense” theory that is excluded from the limitations of the bankruptcy laws. As a result the payor has the right to off-set the amount owed from any new benefits received.
The right of recoupment does not apply to overpayments of SSA funds, therefore the recipient will continue to receive the regular payment.
There is a difference result if the overpayment was made by a long-term disability insurance policy. In that case the insurance company has a right to “recoup/off-set” the amount that was overpaid from on-going future payments. End result – the insured is no longer personally liable as a result of the discharge, but the insurance company can off-set the overpayment from future benefits.
Some Case Law:
In re DeLotto, 2015 Bankr. LEXIS 3846 (Bankr. D.R.I. November 9, 2015) Reduction of Social Security disability benefits to reimburse overpayments did not violate the automatic stay. Conclusion: Liberty Life’s post-petition reduction of Mr. DeLotto’s benefits to recover its pre-petition overpayment in accordance with the Policy terms constitutes permissible recoupment that is an exception to the automatic stay.
In re Terry, No. 08-43123, Adv. No. 09-3031 (Bankr. W.D. Mo 2010) (affirming In re Caldwell, theory of recoupment applies to long-term disability)
In re Beaumont, No. 09-7006 (10th Cir. 2009) (Theory of recoupment does apply to VA overpayment)
In re Caldwell, 350 B.R. 182 (Bankr. E.D. Pa. 2006)(distinguishing Lee v. Schweiker, 739 F.2d 870 (3d. Cir. 1984))(SSA is a govern by a “social welfare” statute that is an “entitlement” compared to the case in hand where the benefit is governed by a “contract” between the parties”)) (note – pre-BAPCPA)
Most Complaints objecting to dischargeability of a debt includes 523(a)(6) include a “catchall” count. We’ve been successful in knocking out that count in almost every case. Regarding intent and how to prove it, the best advice is to use Kawaauhau v. Geiger, 523 U.S. 57, 140 L.Ed.2d 90, 118 S.Ct. 974 (1998) as your guide. The Supreme Court held that the actor needed to be aware that the conduct was not only wrongful, but also would necessarily cause the injury in question to rise to the “willful and malicious” standard. Since Geiger, most courts have used a subjective approach to determine the intention required for “willfulness.” In re Moore, 357 F.3d 1125 (10th Cir. 2004); In re Su, 290 F.3d 1140 (9th Cir. 2002); In re Markowitz, 190 F.3d 455 (6th Cir. 1999).
Collateral Estoppel principles:
The Supreme Court has held that “collateral estoppel principles do indeed apply in discharge exception proceedings pursuant to §523(a).” Grogan v. Garner, 498 U.S. 279, 285 fn. 11, 111 S.Ct. 654 (1991). In the Ninth Circuit, collateral estoppel principles are applied in nondischargeability litigation to the extent that they would apply were the litigation being held in a court of the state where the original judgment was entered. In re Nourbakhsh, 67 F.3d 798, 800 (9th Cir. 1995), citing, Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 380 (1985) This is true, in the Ninth Circuit, even in default cases. Nourbaksh, supra, 67 F.3d at 800.
It appears that most states find collateral estoppel should be applied where (1) there is indentity of the parties, (2) the issues are identical, and (3) the matter has been litigated to final conclusion. See, e.g., Trucking Employees of North Jersey Welfare Fund, Inc. v. Romano, 450 So.2d 843, 845 (Fla. 1984); Mobil Oil Corp. v. Shevin, 354 So.2d 372, 374 (Fla. 1977). Other states sometimes add that the issue must be “necessarily” decided in the prior litigation, and also be “decisive.” See, e.g., Buechel v. Bain, 97 N.Y.2d 295, 303, 740 N.Y.S.2d 252, 766 N.E.2d 914 (2001).
Griffin v. Wardrobe, No. 07-16635 U.S. 9th Circuit Court of Appeals, March 16, 2009
In an action to declare a state judgment for fraud non-dischargeable in bankruptcy, summary judgment for Plaintiff is reversed, where the state court improperly allowed Plaintiff to amend her complaint in violation of the automatic stay under the Bankruptcy Code. The stay had been lifted for the sole purpose of the Movant pursuing the Debtor’s bond.
Lockerby v. Sierra, No. 06-15928 U.S. 9th Circuit Court of Appeals, August 07, 2008
In the bankruptcy context, an intentional breach of contract cannot give rise to nondischargeability under 11 U.S.C. section 523(a)(6) unless it is accompanied by conduct that constitutes a tort under state law. Read more…
CREDITOR WITH NONDISCHARGEABLE DEBT CAN COLLECT INTEREST FOLLOWING CHAPTER 13 DISCHARGE
In re Foster, ___ F.3d ___ (9th Cir. 2003) – Feb. 8, 2003 Debtor’s chapter 13 plan provided for full payment of delinquent non-dischargeable child support. Debtor completed the plan and was granted a discharge. Subsequently, Ventura County District Attorney went after debtor for the accumulated interest that was not paid through the plan. Held, plan could not provide for payment of interest, and creditor could collect unpaid interest following discharge. This is the majority rule.
A claim for post-petition interest on a debt not dischargeable in Chapter 13 under 11 U.S.C. § 1328(a) is not part of the bankruptcy estate because such unmatured interest was not part of the debt as of the date of filing the petition. Thus, a creditor cannot insist on interest being paid through the plan. And, the Code does not explicitly prohibit collection of post-petition interest after a debtor completes a confirmed chapter 13 plan.
CRIMINAL RESTITUTION and CHAPTER 13:
While criminal restitution is non-dischargeable under section 523, it is not one of the listed priority debts in section 507 (the same problem as with educational loans). Therefore, any attempt to pay that unsecured debt in full in the plan without the same percentage payback to other unsecured creditors would likely cause the trustee to object. Instead, try to get the agency to whom the restitution is owed to agree to a long term payback of the restitution–longer than the Ch 13 plan’s duration . Then, using section 1322(b)(5), pay the restitution outside the plan as a budget expense.