Unemployment and Bankruptcy

Can You File Bankruptcy on Unemployment Overpayment?

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?

  1. 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.
  2. 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.
  3. 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.

Have Any More Questions Regarding Bankruptcy and Unemployment?

If you have any questions regarding bankruptcy and unemployment let us know. Feel free to call us of fill out our contact form to set up a free consultation.