If I Was Overpaid Unemployment Benefits And The State Wants Me To Pay It Back! Will Bankruptcy Help?

04 Oct If I Was Overpaid Unemployment Benefits And The State Wants Me To Pay It Back! Will Bankruptcy Help?

I was watching the news recently and it caught my attention thatthe State of North Carolinasays that it had paidlots of people more than it should have inunemployment benefits. Because of this,the State will seek to recover the amount that it claims it overpaid.See article here.

If you were receiving unemploymentand the Statesays you were paid too much,how are you going to pay the State back if you are (a) still unemployed, or (b)nowhave a job butmake less money andstill haveotherbills to pay like thehouse and car? Will bankruptcy help?

Typically, once you file bankruptcy, the automatic stay will serve to stop a creditor from attempting to collect a debt. Does that mean thatthe State would not be allowed to get its claimed overpayment? A careful distinction is made when there is aclaim for recoupment. A recoupmentis not stayed and the State may collect theoverpayment of benefits by withholding future unemployment checks.

Let’s consider an example.Suppose you areeligible for unemployment benefits and will receive a weekly checkin theamount of $389.00 per week.What if the State pays youin the amount of $489.00 per week for a period of 20 weeks. In that instance, the State has overpaid you by $2,000.00 ($100 x 20 weeks).

Once theState figures this out, the State will request that youpay backthat money back. Ofcourse, you do not have the money. If you are still eligible for unemployment, the State will then reduce your future benefits to recover the overpayment. To continue the exampleabove,since the State overpaid you by $100 a week, the State may reduce your futurebenefits by $100 to recoup the overpayment–so instead ofreceiving $389.00 a week, you will receive$289.00 a week for the next twenty weeks.

So, how will bankruptcy help this situation. If you are still receiving unemployment benefits when you file bankruptcy, it will not help at all. Generally, recoupment actions are not stayed by the automatic stay so that the State can and will continue to withhold the amountit overpaid to you out of future benefits thatare entitled to.

But, if you are now employed or no longer eligible to receive unemployment benefits, the overpayment is just a debt owed to the State. It becomes a general, unsecured claim and willeither be discharged or paid through your chapter 13 plan just like any other unsecured creditor. In this instance, bankruptcy can be a big benefit in that it will dischargeany claim the State may assert against you for overpayment of unemployment benefits.

It should be remembered thatif the overpayment in unemployment benefits was caused by fraud on yourpart, that is a criminal offense and bankruptcy will not discharge that obligation. For example, if you reportto the Employment Security Commission that you are not workingso you can continue to receive benefits when you really are working, that is fraud. The State will seek to recover the overpayment and willquite possibly starta criminal prosecution. Bankruptcy will do little to help in that instance.

This type of situation occurs with some regularity in the context of overpayments for unemployment benefits. It also occurs with some regularity with overpayments of Social Security benefits and with long-term disability benefits through a private disability insurer. It is important to note that a recoupment of an overpayment is not stopped by the automatic stay but a set-off of debts is stopped.

In the context of unemployment or disability overpayments, an overpayment can be recouped through a reduction in future benefits. However, if you are no longer eligible to receive these benefits so that you do not have any future benefits from which the overpayment can be recouped, then the claim for overpayment is just another unsecured debt and can be discharged through your bankruptcy case.

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Adrian Lapas, Esq.

I've been practicing bankruptcy law in North Carolina since 1993, and am certified as a specialist in consumer bankruptcy law by the North Carolina State Bar.
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