Social Security is an insurance program where workers pay premiums through payroll taxes. Social Security eligibility is not affected by other financial fortunes. Supplemental Security Income (SSI) is a means-tested welfare program for people of low income and few assets. If it was your mother's SSI that was terminated when she received $7,000, that result would be correct because her $7,000 would exceed the $2,000 limit on countable resources. When she has spent her settlement down to under $2,000, she should be able to reestablish her eligibility and start SSI benefits again.
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YEs. SSI is need based, and assets over $2000 prove that in SSA's mind you no longer "need" the help. Keep receipts for where the money was spent and file a new claim in the next few months and she should get back on SSI fairly quickly.
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