Hayes: Debt Waivers

Hayes v. McDonough, Case Number 20-0449, decided March 7, 2022 discusses waiver of a debt.

This case deals with an overpayment of pension benefits to a surviving spouse.  When the surviving spouse applied for survivor’s benefits she reported of other our sources of income that she did not receive any monthly income from sources such as wages or social security administration benefits and expected none in the next 12 months.  Based on the lack of income, the VA granted non-service connected pension benefits of $660 a month.  Over the next several years, the VA requested the surviving spouse verify her continuing eligibility for pension benefits by disclosing income, but at no point did she report any other income.

Several years later, from other federal agency data, the VA discovered she had received income in the form of monthly social security benefits, wages, and unemployment insurance benefits, and proceeds from the sale of a house she had inherited.  Because her newly verified income exceeded the eligibility limits, the VA concluded it had overpaid her pension benefits.

The surviving spouse sought a waiver of the debt due to difficulty financial circumstance, but the VA determined it could not waive the debt because she had acted in bad faith by failing to accurately report income to the VA.  She argued she did not intentionally hide income but did not realize SSA or unemployment benefits were countable.  The Board denied waiver observing “waiver is unavailable if the overpayment resulted from fraud, misrepresentation, or bad faith. Although the Board found insufficient evidence of record to prove fraud, it nonetheless determined that Mrs. Hayes "purposefully reported inaccurate income . . . with the intent of obtaining and retaining VA benefits that she was not entitled to receive, thereby engaging in willful misrepresentation of a material fact." R. at 3. It further determined that she acted in bad faith when she "failed to report all of her income and did so with the intent to seek an unfair advantage, with knowledge of the likely consequences, and with resulting loss to the government."”

First, the spouse argued the definition of “misrepresentation” adopted by the Board was incorrect as it requires willful standard.  She then argues the Board’s application of a vague standard makes the Board’s reasons and bases inadequate.  The Court determined a willful standard is supported by a reading of the statute and regulation and noted: “the Board determined that Mrs. Hayes committed misrepresentation because she made a conscious choice not to disclose—either on her initial VA pension application or in subsequent updates—any income, despite knowing from clear statements from the Agency that the law required her to do so. See R. at 4 ("The fact that the appellant was directly told on the [VA form] to report to VA all payments from any source and asked about her reliance on public assistance, but chose to not disclose this information, demonstrates a willful misrepresentation of a material fact."). Mrs. Hayes doesn't directly challenge the Board's conclusion as improper or inconsistent with the record.”

This cases pivots on wilfulness in failing to report changes in income while in receipt of pension benefits.  This case serves as a reminder that you must be truthful and fully report any changes in income.

Decision by Judge Toth and joined by Judges Greenberg and Laurer.

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