TN 23 (02-08)
GN 02215.230 Result of Bankruptcy Proceedings - PC Procedure
If a discharge order excepts a Social Security debt or the bankruptcy proceedings are dismissed, normal collection efforts can be resumed. Otherwise, the bankruptcy judgment will be binding on SSA with repayment (if any) limited to the terms of the discharge order unless the Chief Counsel is successful in objecting to the discharge.
Once a discharge order is received, subsequent action will depend on whether a Proof of Claim was filed (GN 02215.195G.) and whether the debt is discharged without exception or repayment is involved.
2. Chapter 7 Discharge
a. Discharge Without Exception
If the bankruptcy court issues a discharge order, it will generally discharge all debts that arose prior to date of filing of the bankruptcy petition as discussed in GN 02215.185C.1.). This includes any penalty assessed due to work and earnings.
If the debtor did not list SSA as a creditor in the bankruptcy petition, in a “no assets” case, such unlisted debts are discharged. In cases where the debtor did have assets to distribute to creditors, unlisted debts are only discharged if the creditor received actual notice of the bankruptcy in time to file a proof of claim. In all such cases, consult with the RCC’s office to determine whether the debt to SSA is included within the discharge.
Regardless, recovery can be pursued from any jointly and severally liable person(s) (GN 02205.001B., GN 02205.007) so long as such person's debt has not also been discharged by a bankruptcy court.
EXCEPTION: If a debt is discharged against a representative payee who received payment for a minor child or legally incompetent adult child (DAC), the child’s debt is also discharged. This is not a matter of bankruptcy law but a policy decision that only applies to Title II children.
b. Discharge Requires Some Payment
If the bankruptcy judgment requires payment of a portion of the outstanding debt, recovery from the party to the discharge is limited to the amount required to repay.
Recovery of any balance can be pursued from a jointly and severally liable person(s).
EXAMPLE 1: Frank Jones was overpaid $3500 due to work and earnings and a $500 penalty was assessed. He filed for bankruptcy and the bankruptcy court discharged $3400 of the debt with $100 payable to SSA from the debtor's assets. Recovery is limited to the $100; the penalty is not recoverable.
EXAMPLE 2: If Mr. Jones had a representative payee who was jointly and severally liable for the $3500 debt in Example 1 and the payee had not filed for bankruptcy, the $3400 remaining debt is recoverable from the payee.
3. Chapter 13 Discharge
In a Chapter 13 bankruptcy, the court approves a plan for the debtor to pay off some or all of his/her debt over a 3-5 year period. A portion of the debtor’s income is turned over to a trustee who pays the creditors according to the terms of the plan. A creditor must file a Proof of Claim in order to share in the payments from the trustee. Many plans provide for little or no payments to unsecured non-priority creditors such as SSA. At the conclusion of the plan, the court issues a discharge order which covers all debts “provided for in the plan.” A debt is provided for in the plan if the creditor was listed in the bankruptcy petition and the plan contains a provision concerning that class of debt, even if the provision is to make little or no payments to that class of creditors. The order of confirmation of the plan will specify the amount and intervals of payment (e.g., $25 semi-monthly, $100 monthly, $100 every 2 months). If SSA is not listed in the bankruptcy petition or it is not clear if the debt to SSA was covered in the plan, consult with the appropriate RCC’s office. If the outcome of a bankruptcy petition is unknown 1 year from the date of the original petition, follow-up with the RCC in any bankruptcy situation.
1. Debt Discharged Without Exception
If a Proof of Claim was filed, input a Record Bankruptcy Judgment (DFBJ) screen with a Decision of 1 – FULL DISCHARGE (MSOM DMS 007.007) to delete the debt from ROAR control. Annotate the MBR special message field: “DEBT DISCHARGED.” Pay any subsequently determined underpayment. DELETE ANY PENALTY.
If a Proof of Claim was not filed, simply annotate the MBR as indicated. Pay any subsequently determined underpayment. Make sure that any penalty is also deleted.
If the debt was discharged under Chapter 7, repay any monies withheld effective with the month of bankruptcy filing (i.e., the date of the bankruptcy notice).
If a refund (voluntary, without protest) is subsequently received, deposit the refund in the appropriate trust fund. If the refund does not completely satisfy the debt, do not initiate any follow-up recovery efforts. Clear the remittance control, and change the amount of the outstanding overpayment reflected in the special message field.
2. Court Ordered Repayment
If a Proof of Claim was filed under Chapter 7 and repayment is limited to a portion of the debt (see example in GN 02215.230A.2.b.), input a DFBJ screen with a bankruptcy decision of 3, the collectable amount allowed by the court, and a diary date of 6 months to control receipt of the payment. If a Proof of Claim was filed under Chapter 7 and repayment is for the full amount to be refunded, input a DFBJ screen with a bankruptcy decision of 4 and a diary date of 6 months to control receipt of the payment.
If a Proof of Claim was filed under Chapter 13 and specific payments are involved, maintain the TC 23 (or TC 84 if the debt was controlled by RECOOP) indicator. (DO NOT INPUT AN INSTALLMENT AGREEMENT. Establish a diary based on information obtained from the repayment plan to the DRDY screen (MSOM, DMS 007.021).
Follow-up with the RCC in any repayment situation if payment is not received when a diary matures and rediary for no less than 12 months.
If a Proof of Claim was not filed, the debt was deleted from ROAR control (GN 02215.195E.). Consequently, if a discharge order is received in this situation and repayment is involved, reestablish the overpayment on ROAR and proceed as indicated for situations where a Proof of Claim was filed.