BASIC (08-04)

PR 07220.007 Colorado

A. PR 04-274 SSI - Repayment of Misapplied Funds From a Dedicated Account, Representative Payee files for Bankruptcy

DATE: June 22, 2004

1. SYLLABUS

Funds misapplied from a dedicated account by a representative payee are a legal debt subject to bankruptcy rules and proceedings.

2. OPINION

Issue

You have asked for our opinion whether the misapplied funds from a dedicated account by a representative payee are a legal debt for purposes of bankruptcy proceedings.

Short Answer

For the reasons set forth below, we believe that SSA's right to recovery of misapplied funds from a representative payee means the funds are a debt for purposes of bankruptcy.

Legal Analysis

Section 1631(a)(2)(F) of the Social Security Act, 42 U.S.C. § 1383(a)(2)(F), requires that the representative payee for a child under age 18 establish a separate account with a financial institution, i.e., a dedicated account, where the child is entitled to more than six months past-due benefits. See 20 C.F.R. §§ 416.542(a)(3), 416.546, 416.640(e). The law specifies that the funds may be used only for medical treatment, education or job training, or for other expenses, provided they are related to the child's impairment. See id. at 416.640(e)(2). Use of funds from a dedicated account in any manner not specifically authorized "shall be considered a misapplication of benefits . . . and any representative payee who knowingly misapplies benefits from such an account shall be liable to the Commissioner in an amount equal to the total amount" expended. Id. § 1383(a)(2)(F)(ii); see also id. at 416.640(e); POMS SI 02101.010 (Past-Due Benefits Payable-Individual Under Age 18 with Representative Payee-Dedicated Account Required); GN 00602.140 (Permitted Expenditures from Dedicated Accounts).[_11]

As explained in POMS GN 00602.140B.5:

"Misapplication" of benefits occurs when a payee knowingly uses dedicated account funds for expenditures not permitted. (Misapplication differs from misuse in that misuse occurs when a payee uses funds for a purpose other than for the use and benefit of the beneficiary, while the misapplication of funds, though not permitted, can benefit the beneficiary. In addition, misapplied funds that are returned go back to the General Revenues, while misused funds that are returned go back to the dedicated account. See GN 00602.140C.8.) A determination of misapplication is an initial determination, with appeal rights. [See POMS SI 02220.060D.3.d, e.] Procedures for making misapplication determinations are in GN 00602.140C.

When SSA "determines that a payee 'knowingly' misapplied funds," the Agency will attempt to collect the total misapplied amount from the payee as provided in POMS SI 02220.060. POMS GN 00602.140B.5.a. The process for collecting from the payee is described in POMS SI 02220.060D. The payee has 60 days after notification of the misapplication determination to request reconsideration. If the payee requests reconsideration, SSA must stop recovery efforts. SSA may resume recovery efforts after the reconsideration determination and continue collection efforts, even if the payee pursues further administrative appeal remedies, i.e., requests a hearing before an Administrative Law Judge or Appeals Council review. See POMS SI 02220.060D.4.b. If the payee fails to respond to the initial determination within 60 days or refuses to cooperate or repay, the case may be referred to the Department of Justice (DOJ) for civil action. See POMS SI 02220.060D. If referral to DOJ is not appropriate or DOJ declines to take the case, the file is annotated and the Office of Financial Policy and Planning Operations must be notified. See id.

Under 11 U.S.C. § 101 (12) of the Bankruptcy Code, "'debt' means liability on a claim." Section 101(5) defines a "claim" as

(A) right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or

(B) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured[.]

Based on the foregoing, we believe that because SSA has a right to recover misapplied funds from the representative payee, the misapplication of funds constitutes a debt as defined in the Bankruptcy Code.

The filing of a bankruptcy petition results in an automatic stay of collection activity with respect to the debtor or any contingently liable person, but not to any other jointly and severally liable person who is not a party to the bankruptcy action. See POMS GN 02215.185. Therefore, where SSA is collecting or attempting to collect misapplied funds from a representative payee who has filed a bankruptcy petition, SSA should stop all collection efforts and proceed under the relevant POMS provisions pertaining to bankruptcy.

CONCLUSION

For the reasons discussed above, we believe that misapplied funds are legal debt subject to the bankruptcy rules.

Deana R. E~-L~
Regional Chief Counsel, Region VIIIBy ___________________

Teresa H. A~
Assistant Regional Counsel

_11It might also be possible to find that the payee misused the funds, and "a finding of misuse does not preclude a finding that the payee also misapplied funds." POMS GN 00602.140C.8.d. In the case of misuse, POMS GN 00604.045 and GN 00604.050 apply.

B. PR 02-006 Use of SSI Past-Due Benefits - Foster Care

DATE: January 8, 2002

1. SYLLABUS

Under Colorado law the cost of foster care is considered a legal debt owed by the child's parents. A foster care agency acting as representative payee for an SSI recipient with a dedicated account may recover past expenses from dedicated account funds if those expenses are related to the child's impairment.

2. OPINION

You have requested our opinion as to whether foster care is a legal debt and whether states (or their political subdivisions) may use SSI past-due benefits to reimburse themselves for "care and maintenance" costs of foster care. For the reasons discussed below, if an SSI recipient's past-due benefits are in a "dedicated account," those funds may not be used for basic maintenance costs.

a. Factual Background

In a letter dated June 27, 2001, Ms. Paula H~ of the Larimer County (Colorado) Department of Human Services, Children, Youth & Family Division (the agency), requested from SSA a formal exception to SSA's dedicated accounts policy to allow the agency to reimburse itself for past expenditures for foster care. Ms. H~ noted the agency routinely applies for SSI benefits on behalf of children in its care, and you have informed us that the agency serves as representative payee in this case. Ms. H~ noted that recently the agency had received medical approvals for applications submitted more than six months previously, and that the SSI past-due benefits therefore were subject to SSI dedicated account provisions.

Ms. H~ argued that although the agency's expenditures may primarily be attributed to a category not permitted (food, shelter, clothing, and personal items), they serve a larger purpose in improving and treating the child's condition. Ms. H~ noted that the agency's payments to facilities/foster homes may include not only basic maintenance costs, but also costs for difficulty of care assessment, administrative/staff maintenance, and treatment services. Ms. H~ also pointed out the responsibility for the delayed approval of SSI benefits was with the Colorado Disability Determination Services (DDS) and not the agency.

b. Analysis

Under section 1631(a)(2)(F) of the Act, 42 U.S.C. § 1383(a)(2)(F), if a child under the age of 18 is awarded more than six months' worth of SSI past-due benefits, the child's representative payee is required to establish a "dedicated account" into which those past-due benefits must be deposited. The law also restricts the items and services that the payee is permitted to purchase with funds from the dedicated account. See id. The funds may be used only for medical treatment, education or job training, or for other expenses, provided they are related to the child's impairment. See id.; see also 20 C.F.R. §§ 416.546, 416.640(e) (2001); POMS GN 00602.140.

Under 20 C.F.R. § 416.640(d), a payee may satisfy a beneficiary's debt arising prior to the first month for which payments are certified to the payee if the beneficiary's current and reasonably foreseeable needs are met. See also POMS GN 00602.030A. POMS GN 00602.140C.2.b. provides that funds in a dedicated account may be used for repayment of past debt, including self-reimbursement by a creditor payee, for those items or services that were related to the child's impairment and benefitted the child. SSA approval is required when a payee is also the creditor. See POMS GN 00602.030B.

As an initial question, you have asked whether a child's past foster care costs are considered a legal debt that may be repaid from funds in a dedicated account. In Colorado, parents have a duty to provide reasonable support for their children and are obligated to contribute to the cost of their child's residential placement. See Colo. Rev. Stat. § 19-1-115(4)(d); People ex rel. N.D.S., 5 P.3d 382, 384 (Colo. App. 2000). "Foster care fees are considered child support obligations, and under both statute and rules adopted by the State Department of Social Services (now Department of Human Services), the amount of the fee for which the parents are obligated is based upon application of the child support guidelines." People ex rel. S.M.S., 907 P.2d 739, 740 (Colo. App. 1995). Thus, the costs of foster care are considered a legal debt owed by a child's parents. The question arises as to whether a debt of the child's parents is also a debt of the child SSI beneficiary. However, we need not decide that question in a strict legal sense. Under SSA policy, a foster care agency that acts as representative payee for an SSI recipient may recover past expenses from dedicated account funds if those expenses are related to the child's impairment. See POMS GN 00602.140D. It is the agency payee's responsibility to explain why or how an item or service (other than medical treatment; and education or job skills training) relates to the child's impairment. See POMS GN 00602.140C.2. So, the agency (that is the subject of this opinion) may be reimbursed for a child's past foster care costs that are related to the child's impairment.

Finally, as noted above, you have asked whether dedicated account funds may be used for "care and maintenance," as Ms. H~ has requested. Under SSA policy, basic maintenance costs (food, shelter, clothing, and personal items) not related to the child's impairment may not be paid with dedicated account funds. See POMS GN 00602.140B.4. If "care and maintenance" is the equivalent of "basic maintenance," then dedicated account funds generally may not be used for "care and maintenance" costs under SSA's policy. The GC has previously stated:

Although it would not in our view be the most legally supportable interpretation, we do not believe SSA is legally precluded from going further and adopting a policy under which expenditures for basic needs such as food, shelter, and utilities would, as a general rule, be considered related to the child's impairment and an allowable dedicated account expenditure.

Memorandum, Expenditures of Dedicated Account Funds for Basic Living Expenses, OGC (Fried) to Office of Program Benefits (O'Connell), SSA, July 8, 1997 (copy attached). However, SSA's longstanding policy is that dedicated funds may not be used to reimburse care and maintenance expenses. See Note to file, Dedicated Accounts and Expenditures for Residential Facilities, OGC (Yudin), June 9, 2000 (copy attached). Therefore, in the absence of any regulatory change, that is the policy to be followed in this situation.

Deana R. E~
Regional Chief Counsel, Region VIII

By Thomas H. K~
Assistant Regional Counsel


To Link to this section - Use this URL:
http://policy.ssa.gov/poms.nsf/lnx/1507220007
PR 07220.007 - Colorado - 10/16/2008
Batch run: 01/27/2009
Rev:10/16/2008