A loan is a transaction whereby one party advances money to, or on behalf of another party, who promises to repay the lender in full, with or without interest. The loan agreement may be written or oral, and must be enforceable under State law.

A negotiable agreement is (e.g., a loan) where the owner of the agreement itself can transfer it from one person to another to include the whole amount of money expressed on its face.

A bona fide agreement is legally valid under the applicable State’s law and made in good faith.

A bona fide loan is an agreement that must be enforceable under the applicable State law. Check your regional instructions.

The loan agreement must be in effect at the time that the lender provides the cash to the borrower. Money given to an individual with no contemporaneous obligation to repay cannot become a loan at a later date.

A loan is a cash advance from a lender that the borrower must repay, with or without interest. For a bona fide loan to exist, the lender and the borrower must acknowledge the obligation to repay. When money or property is given and accepted based on any understanding other than it is to be repaid by the receiver, there is no loan for SSI purposes.

A statement by the individual that they feel personally responsible to pay back the friend or relative on its own does not create a legal obligation to repay the individual who provided the cash. Similarly, the lender’s statement that the borrower must only repay the cash if they become financially able to do so does not, on its own, create a legal obligation to repay.

EXAMPLE: Mr. Johnson applies for SSI in June 2011. He has no income and alleges that his son provided him $200 cash per month as a loan. Mr. Johnson states that he would like to use his SSI benefits if approved to pay back the loan. When contacted, the son states that although he would like his father to repay him, he does not have to repay him. The CR determines that a bona fide loan does not exist because there is no obligation to repay.

NOTE: The obligation to repay cannot be contingent on future income that might be paid. There must be an understanding that the borrower must pay it back for it to be a bona fide loan.

The loan must include a plan or schedule for repayment, and the borrower's express intent to repay by pledging real or personal property or anticipated future income (such as retirement insurance benefits (RIB) benefits starting in a year when they turn 62). The claimant may use anticipated income such as Title II, Title XVI, Veterans benefits, etc., to establish a plan for a feasible repayment of the loan as long as the loan states the claimant must pay the money back.

The plan or schedule must be feasible. In determining the plan's feasibility, consider the amount of the loan, the individual's resources and income, and the individual's living expenses.

NOTE: Evidence received later that the individual did not repay the loan does not negate the determination that the loan was bona fide. If it has been previously determined that a loan is bona fide, do not redevelop that issue unless the individual provided incorrect information.

EXAMPLE 1: Plan for repayment based on anticipated future trust

Claimant applies for SSI disability benefits and alleges a loan:

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  Claimant files for SSI on 05/13/11 and alleges his mother pays his rent of $300 each month.

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  The claimant states that he must pay his mother back. You contact his mother and she states that she has been paying her son’s rent since 01/01/11 and he must pay her back.

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  The claimant also states that he will inherit $6000 from his grandfather’s estate when he turns 21. He will be 21 on December 09, 2011 and plans to use this money to pay his mother back.

Determination

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  Both parties confirmed that repayment was not dependent on whether the claimant’s financial situation improved, and

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  The repayment plan is feasible because the claimant intends to use anticipated money from the trust to pay back the loan.

  NOTE: The trust is an excludable resource until claimant turns 21.

EXAMPLE 2: Feasible loan repayment based on anticipated benefits

Claimant applies for SSI disability benefits and alleges a loan:

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  Claimant files for SSI on 05/13/11 and alleges his mother pays his rent of $300 each month.

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  The claimant states that he must pay his mother back. You contact his mother and she states that she has been paying her son’s rent and he must pay her back.

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  The claimant also states that he hopes he is approved for SSI so he can use the money to pay his mother back.

Determination:

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  Both parties confirmed that repayment was not dependent on whether the claimant’s financial situation improved, and

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  The repayment plan is feasible because the claimant intends to use anticipated SSI benefits to pay back the loan.

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  If the eligible individual is the lender, document the loan allegation by completing the Promissory Note, Loan, or Property Agreement page in the SSI Claims system.

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  If the eligible individual is the borrower, document the loan allegation by completing the SSI Claims system page appropriate to the proceeds being held (e.g., Cash or Financial Institution Account pages) and briefly describe the loan in Remarks.

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  For cases not in the SSI Claims system, document the loan allegation per Statements and Other Documentation GN 00301.285 through Evidentiary Documentation Considerations GN 00301.289.

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  If there is a written agreement between the parties, fax a copy of the agreement to the Non-Disability Repository for Evidentiary Documents (NDRED) using the Evidence Portal (EP), or record the pertinent information on the EVID screen.

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  If there is no written agreement, or the written agreement does not cover the requirements in subsection D, obtain statements either signed or recorded on a Report of Contact from the borrower and the lender.

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  You may use forms SSA-2854 and SSA-2855 to obtain the signed statements; store the forms or statements in EP. If you use a Report of Contact, include all the information contained on forms SSA-2854 and SSA-2855. For more information about SSA-2854 and SSA-2855, see SI 01120.220G in this section.

NOTE: These forms do not establish a “written” loan. The forms document the parties' allegations about the loan.

After consulting any regional instructions for applicable State law, determine whether the loan is bona fide under the criteria in section D.

REMINDER: If the loan is bona fide, the cash proceeds are not income to the borrower but are a resource if retained until the following month. For the lender, the loan agreement itself is a resource if it is bona fide and negotiable. The borrower’s repayment of principal is not income to the lender, but the interest portion is unearned income.

If the outstanding principal balance combined with the individuals other resources causes ineligibility, inform the individual that we will use the outstanding principal balance in determining resources unless he or she submits:

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  Evidence of a legal bar to the sale of the agreement; or

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  An estimate from a knowledgeable source showing the current market value (CMV) of the agreement is less than its outstanding principal balance.

Refer to the rules of for obtaining evidence if the individual takes longer than 30 days to submit such evidence; see Information Evidence General SI 00601.100.

NOTE: Knowledgeable sources include anyone in the business of making such estimates (e.g., banks or other financial institutions, private investors, real estate brokers). The estimate must show the name, title, and address of the source.

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  Document your determination about whether the loan is bona fide SSI purposes on the Promissory Note, Loan, or Property Agreement page.

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  Document the loan allegation and the resource value, if any, on the Promissory Note, Loan, or Property Agreement page.

If you are unable to make a loan determination or have questions concerning State law, contact your Regional SSI program staff to discuss your question. If necessary, the regional staff may decide to refer the case to the Assistant Regional Commissioner for Management and Operations Support (ARC-MOS) for possible referral to the Regional Chief Counsel. Do not contact or refer materials to the Regional Chief Counsel directly.

Situation: Based on an oral agreement, Mr. Tyson, an aged SSI recipient, alleges that he borrowed $500 from his brother in February. Regional instructions confirm that oral loans are binding in the State where the brothers live. Mr. Tyson alleges he told his brother he would repay him when he received the proceeds of an insurance settlement. Mr. Tyson stated that he would receive the settlement in about 9 months. He also said he was unsure about the exact amount but estimated that it would be about $500.

Analysis: The CR determines that the loan is bona fide. An oral loan agreement is legally enforceable under the applicable State law. A signed statement (Form SSA-2855) from Mr. Tyson confirms that he acknowledged his obligation to repay and intends to accomplish this by using anticipated income. A Form SSA-2854 completed by the brother confirms that Mr. Tyson is obligated to repay him. The CR determines that the loan proceeds are not income to Mr. Tyson. If retained, the proceeds would be a countable resource on the first moment of the following month. For more information about Forms SSA-2854 and SSA-2855, see SI 01120.220G in this section.

With a formal loan, there is rarely a question about whether the loan is bona fide. The key issues are determining the resource value of the loan agreement for the lender and the amount of interest income received.

If the value of the loan agreement could affect resource eligibility:

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  Obtain the written loan agreement and record the pertinent information on the Promissory Note, Loan, or Property Agreement page and the EVID screen.

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  Assume the agreement is bona fide and negotiable unless the creditor presents convincing evidence of a legal bar to transferring ownership.

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  Assume if the agreement is a resource, that its value is its outstanding principal balance. If the individual wishes to rebut the value, follow the instructions SI 01120.220E.4. in this section.

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  Determine the amount of interest income the lender receives using the formal loan agreement or an amortization schedule.

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  Document your determination about the value of the loan on the Promissory Note, Loan, or Property Agreement page.

With a formal loan, the key issue is determining whether the borrower retains proceeds of the loan that are countable as resources. Follow these steps to determine the countable resources:

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  Assume a formal loan is bona fide. However, the proceeds of the loan are potentially countable resources of the borrower whether or not the loan is bona fide or negotiable.

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  Determine the value of the loan proceeds using procedures appropriate to the type of resource being evaluated. For example, if a bank account contains the loan proceeds, verify the bank account if the account balance exceeds the liquid resource development tolerance.

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  Document the loan allegation and your resource determination on the SSI Claims system page appropriate to the type of loan proceeds the individual has retained (e.g., Cash or Financial Institution Account page).