The Ninth Circuit’s Groundbreaking Decision
When a person files for bankruptcy, they often hope for a fresh financial start—free from the burden of overwhelming debt. However, one of the most common questions debtors ask is whether certain government debts, like Social Security overpayments, can be discharged. A recent decision by the Ninth Circuit Court of Appeals has brought clarity to this issue, particularly regarding the recoupment of Social Security overpayments.
In the case of In re Cooper, the Ninth Circuit reversed a prior ruling by the Bankruptcy Appellate Panel (BAP), which had allowed the Social Security Administration (SSA) to recoup overpaid benefits from a debtor who had already received a bankruptcy discharge. This ruling strengthens the protections offered to bankruptcy filers and ensures that the SSA cannot use the doctrine of equitable recoupment to bypass the discharge injunction.
What is Equitable Recoupment?
Equitable recoupment is a legal doctrine that allows a party (usually the government) to offset a debt by reducing it with a counterclaim or set-off, even if the original debt is discharged in bankruptcy. In the context of Social Security overpayments, the SSA had argued that it could recoup overpaid SSDI benefits from a debtor’s ongoing Social Security benefits despite debtor’s bankruptcy discharge. Essentially, the SSA wanted to offset its overpayment by reducing or withholding future SSDI benefits, even if the debtor’s other debts were legally forgiven.
The Ninth Circuit’s Ruling in In re Cooper
In In re Cooper, the Ninth Circuit ruled that the SSA could not use equitable recoupment to recover overpaid SSDI benefits from a debtor who had already received a bankruptcy discharge. The Court reversed the BAP’s decision, which had previously allowed the SSA to recoup the overpaid benefits, ruling instead that such recoupment violated the bankruptcy discharge injunction.
The decision is significant because it affirms the principle that a bankruptcy discharge fully relieves a debtor of personal liability for pre-bankruptcy debts. Even if the government or another creditor has a claim related to a pre-bankruptcy debt, they are not permitted to evade the discharge by applying a set-off or offset.
What This Means for Debtors
For debtors receiving Social Security, even having 25% of their benefits cut could be catastrophic for the debtor. The best way to eliminate the overpayment debt is to discharge it in bankruptcy.
If you are dealing with bankruptcy and Social Security overpayments, it is important to consult with a reputable and qualified bankruptcy attorney who can guide you through the legal process and ensure your rights are protected. The In re Cooper decision strengthens the protections afforded to you and reinforces the principle that bankruptcy provides a true fresh start, free from undue government interference. We can help! Call (844)894-4440!
Author: Jenny L. Doling, Esq., LLM Taxation
CA State Bar Certified Bankruptcy Specialist
NACBA – Vice President
San Diego Bankruptcy Forum – Immediate Past President
Serving Bankruptcy Clients throughout California and
Tax Clients Nationally