As a general rule, the Bankruptcy Code permits the discharge of unemployment overpayments when you file for Bankruptcy. These payments are usually treated as an unsecured debt and are dischargeable. This is the case whether you file for protection under Chapter 7 Bankruptcy or under Chapter 13 Bankruptcy. The Commonwealth of Pennsylvania debt for the unemployment overpayment will be treated the same as all other general unsecured creditors that you list in the Bankruptcy Petition.
If you file for Bankruptcy protection, the automatic stay will stop collection activities by the state to collect for the overpayments that you were paid.
The above is the general rule but there are exceptions. The big exception is fraud. If you commit fraud then Title 11 Section 523 of the U.S. Bankruptcy Code provides that any debt incurred through fraud is not dischargeable.
The following is an example of a dischargeable debt followed by an example of a non-dischargeable debt.
In the first case. You reported all correct information. The Commonwealth of Pennsylvania by mistake paid you much more than you were entitled to receive. This is an example of an overpayment which is not your fault. In such a situation, the entire amount of the debt would be dischargeable.
The following is an example of a non-dischageable debt.
You collect unemployment for one year. For the first four months you were unemployed and not working. You then obtained a new job. However, for the next eight months you reported to the Commonwealth of Pennsylvania that you were not working at all. During this time you worked at your new job full time and received your full salary. You also received full unemployment benefits due to reporting that you had no income. In such a situation, the unemployment overpayment for the eight months when you were working full time would be non-dischargeable. That is because you made a false report about your financial circumstances with the intent to deceive the Commonwealth so that it would continue to pay you benefits. and the Commonwealth of Pennsylvania relied on your reported information in paying the full unemployment benefits.
When filing bankruptcy an unemployment overpayment is not a debt that is listed as exempt from discharge. It is subject to discharge in a Chapter 7 Bankruptcy and a Chapter 13 bankruptcy. Filing for bankruptcy can provide significant relief from the collection efforts of the state. The automatic stay stops collection efforts from the state to get you to pay back the unemployment benefits.
If a creditor believes that fraud occurred and you file for Chapter 7 Bankruptcy, the Commonwealth of Pennsylvania can file a Complaint – which is a lawsuit objecting to the discharge of your debt in order to determine the dischageability of the debt.
If you file for protection under Chapter 13 Bankruptcy, the Commonwealth of Pennsylvania can file a priority or secured claim which your attorney will either have to object to or file documents dealing with the claim. Otherwise you could wind up paying back Pennsylvania’s unemployment claim in full in the Chapter 13 Bankruptcy.
To get answers to your specific unemployment overpayment questions in Bankruptcy, please call the Law Offices of David M. Offen at 215-625-9600.