October 5th, 2010 by Reed Allmand 
Some newly unemployed individuals are surprised to receive notices from the state that they have been overpaid in unemployment benefits and must repay the money they received. It doesn’t happen all the time of course, but it happens enough for it to be an issue of concern. So what do you do when the state demands that you repay part of your unemployment payments received maybe months earlier?
- If you are currently employed you will need to repay the money from your wages. It may be unfair; but this is how the system works. You will need to repay the state for the overpayment even if it was done through no fault of your own.
- If you are unemployed and still receiving unemployment benefits your future unemployment payments will be offset to repay the previous overpayment. This may cause financial difficulty especially if your unemployment payments are barely enough to cover your essential living expenses.
- If you are unemployed (or employed), no longer receiving unemployment payments and you file bankruptcy, the bankruptcy court will treat the overpayment just like any other unsecured debt. In the case of a Chapter 7 bankruptcy the debt be discharged like other unsecured debts; but in Chapter 13 bankruptcy, the debtor may need to repay it over the course of 3 to 5 years. One problem with debts that are created because of an overpayment from the government is that they are not covered by the automatic stay. So, if you file bankruptcy the state can still continue recovery efforts until the debt is discharged or repaid in bankruptcy.
It’s important to note that if you received an overpayment of unemployment benefits because of fraud, you will receive no protection under the bankruptcy code.
About Reed Allmand
Allmand's vision is rooted in his own financially precarious childhood in Abilene "My father always had difficulty holding a job and supporting our family, so after my parents divorced when I was 12, my sister and I got jobs to help make ends meet," he recalls. "I remember what it felt like as a child to worry that our car would be repossessed or home foreclosed on."
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