There are those that subscribe to the DIY (do it yourself) method of living; consulting YouTube to fix a plumbing leak, canning their own peaches or even filing for bankruptcy without the benefit of counsel.
Following is an actual case history of one woman who filed for bankruptcy, the timing of which ended up COSTING her $20,000. Had she consulted with a bankruptcy attorney first, she would have been advised in such a way that would have saved her that money and more.
In Berg v. Social Security Administration, 2018 WL 3947123 (7th Cir. 2018), the debtor had been on social security disability from 1994 to 2002. In 2002 the debtor went back to work.
The debtor notified the Social Security Administration of her change in status, but the administration continued to make disability payments, totaling more than $25,000.00. A social security judge ordered the debtor to repay $24,000.00 in benefits at the rate of $300.00 per month.
The debtor started making the payments. The debtor stopped working again in 2012 and filed a new application with social security for benefits in 2014. The debtor’s application was approved, and the debtor was slated to receive benefits in excess of $1450.00 per month.
The Social Security Administration, however, had not forgotten about the overpayment dating back to 2002. So the Administration reduced the award to $907.00 a month until the overpayment was paid in full. At that time the debtor still owed almost $20,000.00.
On August 7, 2014, the debtor filed a chapter 7 petition in bankruptcy. The debtor argued that she was entitled to keep the entire $1450.00 a month because she received notice of her award within three months of a bankruptcy filing. Under the Bankruptcy Code, all payments made to the creditor within 90 days prior to the bankruptcy filing could be set aside by the bankruptcy court.
The appellate court, however, ruled that the new social security benefits dated back to the date that the debtor stopped working in 2012. Thus, the debtor was only entitled to three checks at the full amount of $1450.00 for the three months prior to her filing for bankruptcy. As to all future benefits, the administration was entitled to reduce the payments to $907.00 a month until the old 2002 overpayment had been paid in full.
This was a very bad result for the debtor, and clearly, a result that she did not anticipate. But if her attorney had done his research, he should have known that this was going to be the result. There was ample precedent that existed that permitted social security to make this adjustment (called a “set-off”) even though a bankruptcy petition had been filed.
The mistake was made when the debtor decided to apply for social security benefits before she filed for bankruptcy. If she had filed for bankruptcy first, the 2002 overpayment would have been discharged by the chapter 7 filing. Under the Bankruptcy Code, a creditor, even the Social Security Administration, cannot set-off a pre-petition claim against its post-petition debt. Only pre-petition claims can be set-off against pre-petition debts. Since both the claim for overpayment and the social security benefit were pre-petition, the set-off was perfectly in order.
If the debtor’s attorney had advised her to file for bankruptcy first, the debtor would have saved herself almost $20,000.00 in social security benefits.
It is extremely important that you hire competent bankruptcy counsel if you need legal advice about the wisdom of filing for bankruptcy. Not all attorneys are the same, especially bankruptcy attorneys.
We at the Bankruptcy Advocates have combined experience of over 80 years. We know the intricacies of the Bankruptcy Code. We have litigated bankruptcy issues in the Bankruptcy Court, the United States District Court, and at the Court of Appeals level. While our office is in Carbondale, we service a wide area in Southern Illinois, including, Chester, Murphysboro, Anna, Jonesboro, Vienna, Harrisburg, Marion, Benton, McLeansboro, Carmi, Mt. Vernon, Herrin, and Pinckneyville. Call us at 618-549-9800. Our initial consultation is without a fee.