What It Is

• A federal government overpayment refers to any portion of a payment that you were mistakenly awarded that is above and beyond what you are entitled to normally receive. For example, if you receive Social Security payments and the government serves you a notice that you were overpaid, you then owe the government its money back. When filing for bankruptcy, your financial situation may prohibit you from paying the government back if you have already spent the overpayment. In this case, government overpayments can be discharged during bankruptcy, though only certain types of overpayments are eligible for discharge.
  
  

Types of Discharges

• Federal government overpayments that can be discharged during bankruptcy include Social Security payments, Supplemental Security income and unemployment insurance. Other government debts such as income taxes and sales taxes can also be discharged. Payroll taxes and trust fund taxes cannot be discharged during bankruptcy, and neither can criminal restitution, which is the money an offender is legally required to pay a victim. In general, federal student loans cannot be discharged unless the debtor can prove "undue hardship."
  
  

Exceptions

• While you can generally discharge a federal government overpayment during a bankruptcy, there are exceptions. The main exception, according to bankruptcy law firm Ledford & Wu, would be if the overpayments to you involved "fraud or intentional deceit." For example, if you purposefully manipulated the numbers on your Social Security documents to receive more pay than you are entitled to, then during bankruptcy you cannot discharge the government overpayments you received.
  
  

Concerns

• It's important to file for a discharge sooner than later since the government programs that are overpaying you, such as the Social Security Administration, can correct their payments in future benefit checks. Contact an experienced bankruptcy attorney if you are wondering whether discharging your debts is the right decision in your financial situation. Most attorneys will provide you with a free consultation prior to taking on your case.