The situation is this.
Your LTD carrier (read your policy) probably (as they all most do) has a provision that it can be reimbursed if at any point you start to receive SSDI (or any other income). So let's say you receive LTD benefits for 2 years and then apply for SSDI. SSDI determines you disabled and gives you backpay to the time you are determined to be disabled. Your LTD carrier can and will ask to be reimbursed the difference. To further that example - if your LTD is, say, 500 a month and SSDI is 200 a month, the LTD carrier will ask for that 200 a month returned. Continuing forward your LTD benefits will be reduced by the benefit you receive from SSDI. SSDI is considered income which can and will be deducted from your LTD benefits. You do not end up with less a month, you end up with a little more.
The fact that you spent the money on - anything is of no consequence. You owe them the money.
You can call them and request a payment schedule and they may deduct that from your monthly LTD benefits rather than you having to pay the whole amount at once. They do not have to accomodate you but perhaps they will be nice. I'd certainly ask. If you do not pay them back this can go into collections and file against you.
I do not think bankruptcy will protect you from this but you could always ask an attorney. It is clearly stated in your LTD policy that they can be reimbursed so you do not have a legal standing. The insurance company would no doubt fight the bankruptcy order becasue you should have known that you were required to repay the money SSDI sent you. It was not, in effect, yours to spend so you can't claim bankruptcy now. It was your responsibility to understand your policy. That sort of thing. I do not know how bankruptcy works spcifically in this situation but I would imagine they have that written in the policy as well. I'd read your policy front to back.
Moburkes - there is no fraud here. SSDI would not care if the person was receiving LTD benefits. LTD benefits do not affect SSDI benefits at all. In fact, LTD companies often help people get SSDI benefits because they know they can get reimbursemnt and reduce their monthly responsibility towards the claimant.
I know because I receive both as well.