Did you receive an unemployment overpayment? If so, you are not alone.
The COVID-19 pandemic resulted in massive layoffs and unemployment for millions of Americans. The federal government implemented numerous relief programs to help individuals, including supplementing unemployment benefits. As a result, many Americans received increased unemployment benefits during the pandemic.
However, throughout the United States, people are receiving notices that they owe thousands of dollars in unemployment overpayments. Some states may waive the overpayment. However, many state agencies demand repayment of overpayments of unemployment immediately or within a very short period.
The deadlines to pay back unemployment payments vary depending on state law. However, the deadline to repay unemployment benefits could be as short as 30 days after receiving the notice. In addition, depending on state law, individuals who do not reimburse the state for overpayment of unemployment benefits could face wage garnishment, liens, and seizure of tax refunds.
Options for Paying Back Unemployment Overpayment
You may feel overwhelmed, frightened, and frustrated when you receive a notice stating you owe the state for overpaying unemployment benefits. Even though you did nothing wrong, you now owe the state thousands of dollars. They sent the money, and you used the money. It never occurred to you that you were not entitled to the unemployment benefits.
There are several options for dealing with unemployment overpayments.
Appeal the Decision
If you believe you were entitled to the unemployment benefits, you may appeal the decision. It would be wise to speak with an attorney about the appeal. An attorney argues the legal justifications why you were entitled to unemployment benefits.
Installment Agreement
You may also enter into an installment agreement with the state to repay unemployment benefits. Many state agencies accept installment payments to resolve the debt. However, the payments could place a financial burden on your family.
File a Chapter 7 Bankruptcy Case
Another option would be filing for bankruptcy relief. If you have other debts you cannot afford to pay, filing a Chapter 7 bankruptcy may be the best option for dealing with unemployment overpayments.
Can you file Chapter 7 on Unemployment Overpayment?
A no-asset Chapter 7 bankruptcy case gets rid of most unsecured debts in four to six months after filing the bankruptcy petition. Most unsecured debts are eligible for a discharge in bankruptcy, including:
- Credit card bills
- Medical debt
- Personal judgments
- Old lease and rent payments
- Personal loans
- Some old income tax debts
Some debts are not eligible for a bankruptcy discharge. For example, a bankruptcy discharge doesn’t discharge government debts. Therefore, filing Chapter 7 would not get rid of these debts.
However, the Bankruptcy Code does not list unemployment benefits as non-dischargeable. Therefore, a Chapter 7 bankruptcy discharge would get rid of an overpayment of unemployment benefits.
When you file your bankruptcy petition, the bankruptcy automatic stay goes into effect. Creditors cannot take any action to collect a debt, including the state unemployment agency. Without court approval, it cannot file a lien against you or garnish your wages.
The unemployment benefits would become non-dischargeable if you committed fraud to receive the benefits. For example, you lied about working or earning income to receive benefits, or you lied about your previous work history. If you committed fraud, the state agency could file an adversary (lawsuit) in your bankruptcy case asking the court to find the debt non-dischargeable.
The state might recoup unemployment benefits discharged in bankruptcy from future unemployment benefits. Therefore, you might want to consider how discharging unemployment benefits could impact future benefits.
Filing Chapter 13 to Repay Unemployment Overpayment
If you do not qualify to file under Chapter 7, you might choose to file under Chapter 13. Chapter 13 bankruptcy is a court-monitored repayment plan. Most individuals pay a small percentage of their unsecured debt through the Chapter 13 plan. The amounts owed on those debts at the end of the Chapter 13 plan are discharged. In other words, you get rid of unsecured debts for pennies on the dollar.
Because unemployment benefits are not considered a priority debt, the state agency receives the same percentage of payments as other unsecured debts. Therefore, you discharge the unemployment overpayment for a fraction of what you owe instead of the total amount.
Filing Bankruptcy for Debts Owed to the Government
Bankruptcy discharges do not get rid of most governmental debts. However, unemployment overpayments are an exception. A bankruptcy discharge may also get rid of some old income taxes — if they meet specific requirements. If you owe the government for any reason, you may want to speak with a bankruptcy lawyer. Most bankruptcy attorneys offer free consultations.
Even if your debt is not discharged through Chapter 7, you might be able to file Chapter 13 to spread the debt out over five years. A Chapter 13 plan may be more affordable than an installment plan with the government. Furthermore, filing Chapter 13 could end interest and penalties for many debts. Therefore, you pay less through the Chapter 13 plan than you would through an installment plan with the government.
Ascend is dedicated to helping individuals find affordable solutions to their debt problems. We offer several services free of charge and others for a minimal fee. Contact us today to speak with a representative. It does not cost you anything to speak with someone about your debt problems.
