TN 23 (02-08)

GN 02215.185 Bankruptcy Proceedings - Overview

A. Process

1. Relief From Repayment of Debts

To obtain relief from repayment of debts, an individual may petition the bankruptcy court to discharge the debts or to schedule a repayment plan.

2. Bankruptcy Court Actions

The bankruptcy court will send notice of the petition (Order for Meeting of Creditors or Notice to Creditors) to the listed creditors.

The bankruptcy court will, subsequently, rule on the extent to which the debts may be discharged and advise creditors accordingly.

3. Attorney Fee Involved

Follow HALLEX I-1-2-3C. when a debtor has filed for bankruptcy and attorney fees are involved.

4. Garnishment Involved

Follow instructions in GN 02410.221 when a debtor has filed for bankruptcy and garnishment is involved.

B. Policy

1. Automatic Stay of Collection Activity

The filing of a bankruptcy petition results in an automatic stay of collection activity with respect to the debtor and any minor child or legally incompetent adult child with the debtor as the representative payee and any contingently liable person.

EXCEPTION: This automatic stay does not apply to any other jointly and severally liable person who is not a party to the bankruptcy action.

2. Effect of Petition On SSA

Once notified that a debtor has filed a bankruptcy petition, SSA will:

  1. Stop all recovery efforts immediately including adjustment or billing (GN 02215.195E.), and

  2. Decide whether or not to file a claim with the court (GN 02215.195F.), and

  3. Consider referral to the Regional Chief Counsel (RCC) for possible filing of an objection to discharge (GN 02215.196).

IMPORTANT: Always refer to the RCC if fraud or similar fault (GN 02215.196) is involved.

3. Effect of Bankruptcy Judgment on SSA

The bankruptcy judgment is binding on SSA, with any repayment limited to the terms of the bankruptcy order.

EXCEPTION: If the RCC is successful in objecting to the discharge of a debt (GN 02215.196), SSA may be able to resume full recovery efforts.

C. Types of Bankruptcy Petitions

1. Chapter 7

  1. Unlike bankruptcy cases filed under Chapter 13, a Chapter 7 bankruptcy does not involve a plan to repay debts over a period of time. Evidence of the debtor's assets is required by the court when a petition is filed under Chapter 7. It is, therefore, not necessary to develop evidence of assets. Where appropriate, the court may mark the notice “No Assets.”

  2. A Chapter 7 bankruptcy applies to all existing debts whether or not specifically included in the petition. Currently, a debt exists if the payments comprising that debt were made prior to the bankruptcy filing date (i.e., a pre-petition debt). It is not necessary for the debt to be identified in the petition or for the debt to have been identified by SSA.

EXAMPLE: A person who received disability benefits for all months in 2006 filed for bankruptcy in 02/07. The final discharge is granted in 05/07. In 09/07, SSA determines that the person is overpaid for 2006 based on SGA. The debtor advises us of the bankruptcy discharge. The payments that made up the debt are considered pre-petition debts. , SSA would generally not be able to recover any part of this debt. One exception is where SSA obtains a ruling from the bankruptcy court that the debt is not dischargeable due to fraud.

If SSA is not notified of a bankruptcy filing prior to actual discharge, see GN 02215.230A.2.. for appropriate action.

2. Chapter 11

A Chapter 11 (debtor in possession) petition is usually filed by a business rather than by an individual. , If SSA is listed as a creditor refer the notice to the appropriate RCC for review and any needed action.

3. Chapter 12

A Chapter 12 petition is a repayment plan filed by a farmer. Processing is the same as for a Chapter 13 plan.

4. Chapter 13

A Chapter 13 (wage earner plan) petition is a request that all or a portion of the i