Are Unemployment Overpayments Dischargeable In Bankruptcy?
During the height of the COVID-19 crisis, businesses closed down, and people found themselves out of work. As a result, many people found themselves unemployed—in fact, many states made it easier than ever to get unemployment.
Overpayments of Benefits
But many people who got unemployment now find themselves in a difficult situation—many received overpayments, and now the government wants to be paid back the overpaid unemployment that was paid to out of work people. The state even, at some point, sent people to collections for these overpayments.
Of course, most people, having just gotten back to work, hardly have the extra money to be paying back the state government. The unemployment money that was received was likely used for rent, mortgage, food, or other life necessities. Most people didn’t just bank the unemployment money, just in case it needed to be paid back.
Bankruptcy and Overpayments
If the government is coming after you for a repayment of unemployment overpayment, they may not be seeking enough money to make it worthwhile to file for bankruptcy—although depending on how much the government says you owe them, it may well make sense.
But even if the overpayment was for a relatively modest amount, if you are in financial trouble and considering bankruptcy, you may be wondering whether you can include the unemployment overpayment in your bankruptcy and have it discharged with your other debts.
Unemployment is Dischargeable
The common belief is that the overpayment cannot be discharged, because it is a government debt. However, this is not true—there is no overall exception to discharge for government debts; many government debts can be discharged in bankruptcy. Unemployment overpayment is one of them.
The first step is to see why the overpayment happened. So long as you are not at fault for the overpayment, the debts can be discharged. This falls under the general fraud exception to bankruptcy discharge—you can’t discharge debts that were incurred as a result of fraud, lying or deceit.
So, if you were someone who purposely and knowingly lied about what you were making or about your employment status in order to collect unemployment, you could have a problem discharging debts for unemployment overpayment.
But most people who were overpaid did not purposely lie to anybody or intend to deceive. Many people simply overestimated income, or, in some cases, the government miscalculated payments, and paid you more than what you deserved. Many people may have gotten confused about the unemployment application, and unknowingly provided information that led to an overpayment.
Why Were You Overpaid?
What if you don’t know why the overpayment was made? Well, if you genuinely have no idea, it’s likely that you didn’t do anything knowingly fraudulent, that would prevent a discharge.
Additionally, to avoid the discharge, the government would have to prove that you knowingly and purposely lied in order to get benefits—a high burden, and one that the government is unlikely to take on, unless someone seriously defrauded the government out of a significant amount of money.