CLAIMANT'S
AWARD AND BANKRUPTCDY
There
is a person for whom I can give advise but generally not take on as a
client beyond the office conference and that person is one who comes
into the office with a notice from social security indicating that
s/he has received an overpayment and social security wants its money
back
There
are procedures available to try to deal with an overpayment (defined
at 20 CFR §
416.537 –
note possibility of a surviving spouse being liable for an
overpayment received my deceased spouse). A claimant can challenge
the existence of or the amount of an overpayment by a timely request
for reconsideration. A claimant can request a waiver if: he or she
is without
fault and
the requested adjustment would not defeat the purpose of Title XVI
(SSI); that allowing the adjustment would
be in good conscience and equity,
or the adjustment would impede
efficient or effective administration of Title XVI because of the
small amount involved.
The
test for being without fault is an all factor test, in my experience,
weighed in favor of a finding of fault. If the request for waiver of
re-payment is denied, a request for reconsideration can be filed. If
that is done within 10
days of
the denial, benefits can continue. By the way, if you lose on
reconsideration and request a hearing, collection on the overpayment
can resume from on-going benefits.
A
lot more can be said about the foregoing, but that is not the purpose
of this blog, this blog deals with the nexus of two areas of the law
in which I practice, social security and bankruptcy.
Bankruptcy
and Social Security
The
big problem with the client who comes into the office with a large
overpayment, is that s/he, they, do not have funds either to pay on
the overpayment or for attorney’s fees. I have had clients with a
large overpayment who could borrow money from friends or relatives to
pay the cost of a Chapter 7 bankruptcy (in the appropriate case I see
no reason why a fee only Chapter 13 filing would not work). I try to
explain the cost of not filing with the cost of filing a bankruptcy.
The
reason I bring up the issue of bankruptcy, is that the overpayment
can be discharged. There have been numerous court decision and
clearly, absent fraud on part of the debtor, Social Security
Administration’s claim for overpayment is dischargeable and not
protected from operation of the bankruptcy law. The decisions
finding that the SSA is not protected, tend to base their decision on
42 USC § 407(a). It provides:
“The right of any person
to any future payment under this subchapter shall not be transferable
or assignable, at law or in equity, and none of the moneys paid or
payable or rights existing under this subchapter shall be subject to
execution,
levy, attachment, garnishment, or other legal process, or to the
operation of any bankruptcy or insolvency law.´(italics
added)
The
courts have had no trouble construing this to mean that it is in the
law to protect
recipients from “losing benefits to creditors, not to protect the
federal fisc from bankruptcy of recipients,”
or the SSA from a right of recoupment.
A
good example is the case of Lee
v. Schweiker,
739 F.2d 870 (3rd
Cir., 1984). In that case the SSA had argued that the language in
the law, to-wit “none of the …rights existing under this
subchapter shall be subject to…operation of any bankruptcy…law,”
provided protection from any modification of the obligations of
recipients to repay an overpayment. The Lee
court found that the language did not show any intent to protect the
SSA, rather it provided protection to the recipient of benefits from
creditors, here SSA. It protects recipients from the loss of
benefits, by either contract or legal process. The court in dicta,
dealing with the issue of recoupment, noted that when dealing with
social security overpayment, the courts have held that the benefits
that constitute the overpayment were not paid contractually under
social security law, and that the obligation to repay an overpayment
is a separate debt subject to the ordinary rules of bankruptcy.
As
to benefits taken prior to filing bankruptcy, which funds were used
to pay on the overpayment, social security was allowed to keep the
benefits received by it, because the amounts received did not
“improve its position.’(see 11 U.S.C. §523(a)(2)(C))
Social
Security is not left without any recourse. If SSA can prove fraud or
misrepresentation on the part of the claimant in his/her receipt of
benefits, it still has the rights/remedies set forth in 11 U.S.C. §
523(a)(2)(A)—where a finding of false pretenses, a false
representation, or actual fraud may preclude discharge.
As
with any creditor once SSA receives notice of a bankruptcy filing,
social security must cease any collection efforts. The overpayment
is a dischargeable debt and absent a finding of fraud, the amount
claimant owes to social security will be discharged. When
considering whether to file a individual case or a joint case take
into consideration that the protection is for the named debtor, i.e.
the claimant, and any third parties who have received benefit of the
overpayment can still be required to repay.
It
would seem that there would be no need for a case construing the same
section of the social security act to determine if the bankruptcy
trustee could take benefits due to the debtor for the benefit of
creditors, but apparently not. In Minnesota the case to read is
Carpenter
v. Ries,
09-2897 8th
Cir. Court of Appeals, 2010. The Court of Appeals held that “§407
operates as a complete bar to the forced inclusion of past and future
social security proceeds in the bankruptcy estate. See
Carpenter II,
408 B.R. at 246-49; see
also In re Buren,
725 f. 2d at 1086… We conclude § 407 must be read as an exclusion
provision, which automatically and completely excludes social
security proceeds from the bankruptcy estate, and not as an exemption
provision which must be claimed by debtor.” (The number 3 footnote
in the decision tries to reconcile § 407 and 11 U.S.C. §
522(d)(10)(A) – I leave it for your reading).
Assuming
the claimant’s mental or physical condition has not improved since
s/he was found disabled, upon a filing his/her monthly benefits
should resume without deduction.
What
about the case in which the attorney has represented a claimant
before the Social Security Administration and won, but has yet to
receive attorney’s fees?
Bankruptcy
and Social Security Attorney's Fees
OMG!
I just received notice that my client has filed bankruptcy and
listed me as an unsecured, general creditor. Do I lose my fees? This
turned out to be a very complicated issue without good answer!
As
soon as the bankruptcy notice reaches SSA it will stop processing any
process to adjudicate the attorney’s fees. SSA will not proceed
during the time the automatic stay is in effect. If I have been
listed as an unsecured creditor, SSA will not issue a decision
approving or disapproving a fee based upon a fee petition or fee
agreement during the stay. What if SSA has approved (certified)
the attorney’s fees but not paid them to the attorney, or paid them
out to the attorney?
The
HALLEX indicates that the fees will be paid or not paid depending on
instructions from the bankruptcy court. (I-1-2-3-C.3.) There was an
old Program Circular that provided a discharge in bankruptcy stops
payment of fees. Are they correct?
A
case of interest is Binder
& Binder v. Barnhart,
481 F.3d 141 119 Soc. Sec. Rep. Serv. 393 (2nd
Cir. 2007). In Binder,
fees had been awarded to Binder under §406 (42 U.S.C. 406
Recognition of representatives; fees for representation before
Commissioner). When the claimant filed bankruptcy and listed
Binder’s attorney’s fees as an unsecured, non-priority debt, SSA
demanded return of the paid fee.
SSA
argued that upon claimant/debtor filing bankruptcy, the attorney’s
fee debt was discharged. SSA based its argument upon a Program
Circular (PC) “OCO 98-050 (the “Program Circular”… entitled
“Bankruptcy and Attorneys Fees,” dated March 13, 1998). It
provided that where a bankruptcy court discharges all of a claimant’s
debts, including the representative’s fee, no fee may be authorized
or paid by SSA (Binder
@ 144-145).
The document upon which the fee recovery was based, the PC, was an
internal document and was prepared for use as training material.
The
Court in Binder
struggled to establish jurisdiction to even hear the matter. It
finally decided that “(i)f one conceives of Binder’s claims (both
constitutional and statutory) as arising out of property rights
created by section 406 of the Act, then there probably is federal
jurisdiction…Upon further review…we do indeed have jurisdiction
…we now hold that Binder may invoke federal question
jurisdiction…because, were such jurisdiction unavailable, it would
be unable to obtain any judicial review of its claim under the
Act.”@150.
After
finding jurisdiction the court addressed the actions of SSA in
demanding repayment of the attorney's fees. It held:
“We
simply find no authority for the SSA to interpret and apply
bankruptcy law or to enforce the orders of the Bankruptcy Court, and
we hold that, in the absence of such authority, the SSA's unambiguous
and limited duty was to certify for payment to Binder the firm's
reasonable fee. The SSA has performed that function, and payment has
been made to Binder. Whether Binder is obligated to pay the money to
Delnegro by operation of bankruptcy law is a matter that does not
properly concern the SSA.
If
Delnegro seeks to have the $1,200 returned to her, she must take this
issue to the Bankruptcy Court, where Binder may again raise his due
process, or any other, concerns with that court and may properly file
an appeal from any future judgment of the Bankruptcy Court.”
There
was no authority for SSA to demand the fees back from Binder. The
claimant would have to return to Bankruptcy Court if there was a
desire for a return of the funds. The funds would not be available
to provide relief to creditors, since the funds are not part of the
bankruptcy estate.
Binder & Binder appears
to be quite litigious over issues it finds important to its social
security practice. The issue of a bankruptcy filing on social
security attorney’s fees was again center stage in Binder
& Binder, P.C. v. Astrue, 848
F. Supp. 2d 230 (E.D.N.Y. 2012).
Binder
had been successful and applied for and had its fee approved. The
claimant/debtor filed bankruptcy and received a discharge.
SSA advised Binder, pursuant
to its “Hearings, Appeals and Litigation Law Manual” (“HALLEX”),
that it had received Binder’s petition requesting a fee for the
services but that since claimant had filed a bankruptcy petition, the
SSA could not act on Binder’s fee petition absent authorization
from the bankruptcy court.
We
have moved for social security using a PC in 2007 to use of the
HALLEX in 2012 to attempt to deny payment of fees for services when
tangled with bankruptcy.
The
Court indicated that in the Second Circuit, it
“
has
held that there is “no authority for the SSA to interpret and apply
bankruptcy law or to enforce the orders of the Bankruptcy Court, and
* * *, in the absence of such authority, the SSA's unambiguous
and limited duty [is] to certify for payment
to [the representative seeking a fee under 42 U.S.C. § 406] [its]
reasonable fee,” Binder II, 481
F.3d at 152 (emphasis added). 4
The Second Circuit
also held: “The Social Security Act by its terms does not authorize
the SSA to enforce discharges in bankruptcy or make any determination
as to attorneys' fees other than in accordance with its statutory
authority to fix the fees of claimant's attorneys and
to withhold and transmit the fees so fixed. The
plain language of § 406(a)(4) admits of no exceptions in this
regard.” Id. at 151
(emphasis added). According to the Circuit, “the SSA lack[s] *240
authority to deviate from the procedure outlined in § 406(a)(4) of
the [Social Security] Act.” Id. at
152 n. 3.
Defendant fulfilled
its duty to fix a reasonable fee under Section 406(a)(1) on July 26,
2010, when it determined plaintiff's reasonable fee to be eight
thousand dollars ($8,000.00). Defendant's determination that
plaintiff was entitled to a fee in the amount of eight thousand
dollars ($8,000.00) was proper, notwithstanding the pendency of the
bankruptcy proceeding, since it had an “unambiguous” statutory
duty to fix a reasonable fee for plaintiff's services under 42 U.S.C.
§ 406(a)(1). See Binder II, 481 F.3d at 152. In determining
plaintiff's reasonable fee, defendant recognized the amount of work
completed by plaintiff and determined that plaintiff was entitled to
payment for that work in the amount of eight thousand dollars
($8,000.00). See Id. at 151. “Absent a showing that the
portion of the total past-due benefits to which [the plaintiff] is
entitled is an unreasonable attorneys' fee, * * *, the SSA had a
statutory duty under the [Social Security] Act to pay [the
plaintiff] the certified fee. ” Id. (emphasis added).
Accordingly, since there is no showing that an eight thousand dollar
($8,000.00) fee to plaintiff is unreasonable, defendant had a clear
and nondiscretionary duty, with which it failed to comply without
authority, to withhold the full amount of certified fees from the
past-due benefits award to Landwirth and to pay that amount to
plaintiff. “
It
appears that SSA is to follow the law as it applies in the social
security context completely independent of the rulings of the
bankruptcy court. Once the automatic stay is lifted, it should
complete is obligation to pay the approved fees. The issue of the
propriety of the attorney keeping the earned fee, would need to be
addressed, most likely, to the bankruptcy court.
If SSA pays the fee to the claimant, unless the claimant voluntarily
returns the money to the attorney, the attorney may be left without
a remedy.
The
cases listed in this blog are U.S. District Court decision, a level
of determination that SSA may not adopt outside of the holding of the
particular cases (Note my prior blog on social security’s
non-acquiescence policy)
So
this may be an issue bubbling below the surface in several
jurisdictions outside of the Second (the Third and Eighth Circuits
may bar payment based upon sovereign immunity). This is and will be
an issue into the future. The law is not settled. Social Security
provides sufficient time between award of benefits and actual payment
of fees for a bankruptcy to be filed. The result as can be seen from
SSA's own internal regulations, and case law, is unsettled.
There
would seem that there is a need to question a prospective client,
even if s/he poses a good showing of impairment, to determine the
debt situation and if has spoken about bankruptcy, or seen a
bankruptcy attorney.
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attorney-client relationship. The person viewing my blogs is
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with the express consent to the parties to it. This blog is only the
opinion of the author and are not expressed authority on any of the
subjects discussed