A loan is not treated as unearned income in determining eligibility for and amounts of SSI benefits, as long as there is an obligation to repay the loan. A bona fide loan is generally considered a countable resource to a lender.
Social Security Ruling 92-8p makes it clear that a loan includes not just cash, but in-kind provision of food, shelter or clothing, as long as the loan recipient has an obligation to repay the loan.
It used to be the case before this ruling came out, that social security did not regard in-kind advances of food, clothing or shelter as a loan, and therefore it was countable as income or a resource.
But in 1986, in the case of Hickman v. Bowen, 803 F.2d 1377 (5th Cir. 1986), the Fifth Circuit Court of Appeals held that the agency had no jurisdiction under the applicable regulations (20 CFR 416.1103(f)) for treating a cash loan and and an in-kind loan differently. Social Security subsequently issued Acquiescence Ruling (AR) 88-7(5), agreeing to implement the court ruling to all SSI claimants residing in the Fifth Circuit.
Later, after the Ninth Circuit applied the ruling of Hickman, the agency determined that it should issue a nationwide policy to treat in-kind advances of food, clothing, and shelter the same as cash for purposes of determining if there is a bona fide loan. See Cequerra v. Secretary of Health and Human Services 933 F.2d 735 (9th Cir. 1991).
It should be noted that if the SSI recipient or claimant is the person making the loan, and the loan is set forth in a negotiable instrument, this is considered a cash resource to the lender.
More often, it seems to be the case that the SSI recipient or claimant is the borrower of either cash or food, clothing or shelter.
A bona fide loan will be found to exist if there is an enforceable obligation to repay under applicable State law. The loan will not be treated as income (or “countable resource”) to the borrower. However, any portion the borrower retains until the month following the month of receipt will be considered a countable resource.
If there is an advance, either of cash or in-kind maintenance and support, with an understanding other than that the recipient has an obligation to repay, it will be treated as a countable resource.
If a bona fide loan is found to exist, then there is a rebuttable presumption that it is considered a resource to the lender because it is assumed to be convertible to cash. If the lender can show that the loan cannot be converted to cash (for example, if the borrower died without leaving an estate), then the presumption may be rebutted.
Money received as repayment of a loan is a countable resource inasmuch as it represents a return of part of the outstanding principal of the loan and the total amount of the resource (repayment amount plus outstanding balance) remains unchanged.
Interest received by a lender is considered income; and interest retained is a countable resource to the borrower.
If you have any questions about the interaction of income and resources and SSI, it may be helpful to consult an experienced professional.
This material should not be construed as legal advice for any particular fact situation, but is intended for general informational purposes only. For advice specific to any individual situation, an experienced attorney should be contacted.