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Overpayment of unemployment benefits and bankruptcy discharge

On Behalf of | Aug 9, 2021 | Uncategorized

Being heavily in debt can be overwhelming. You may ultimately decide that filing for bankruptcy is the best course of action to alleviate your debts. However, if you received an overpayment of unemployment benefits in Michigan, you may wonder how they are handled in your bankruptcy case.

What happens with an overpayment of unemployment benefits in bankruptcy?

The overpayment of unemployment benefits may be discharged whether you choose to file for Chapter 7 or Chapter 13 bankruptcy. If you owe the state that overpayment, you can still be shielded thanks to your bankruptcy filing. The state will not be able to attempt to collect that money due to the automatic stay that goes into effect after you file.

What can happen if the state tries to collect the overpayment?

After you have filed for bankruptcy, your petition will include overpayment of unemployment benefits. As the state cannot try to collect the overpayment, it can choose to file adversary proceedings that allege fraud if it thinks that debt should not be discharged. In most cases, fraud is suspected with an overpayment of unemployment benefits if an individual continues to receive unemployment after he or she has secured new employment but doesn’t inform the state.

However, if the state does not file the proceeding in time, and the discharge of the overpayment of unemployment benefits is granted, that debt is discharged regardless of the presence of fraud. If this occurs, the state can still recover the money through future benefits. In other words, if you apply for unemployment in the future, it can deduct the amount you were overpaid previously and apply it to what was discharged through your bankruptcy filing.

It’s important to be careful when you receive unemployment benefits from the state. If you secure a new job, you must report that when making your weekly claim. This can prevent an overpayment from being made.