Not all debts are dischargeable in bankruptcy.
It would be nice for my clients if they were, but there are limits.
See my page on debt discharge in bankruptcy for more information.
One type of debt that for some reason arises with relative frequency is overpayments made for unemployment.
In California these payments are made by the Employment Development Department (EDD).
There are different ways this debt can arise, but essentially what happens is the government pays you more than you are entitled to under the law. You are then obligated to repay that overpayment.
Why Do Unemployment Overpayments Occur?
There are several different ways this can happen.
- A claimant innocently misuses the term “lay-off” during the claim-filing interview;
- a claimant is originally granted benefits but then loses a later appeal;
- a claimant cashes unemployment benefit checks mistakenly sent by the EDD;
- an employer reports earnings or employment information to the EDD that differs from the information given by the claimant; or,
- a claimant untruthfully completes the Continued Claim Form.
As you can see, some of the above are “innocent” or accidental, while others are not. This is critical in determining whether the overpayment is dischargeable in bankruptcy.
EDD Overpayments Are Usually Dischargeable In Bankruptcy
As you might guess, the overpayments are dischargeable if the reason for the overpayment was not due to the fault of the recipient, or that the fault, if any, was innocent.
The overpayment is not dischargeable if the claimant put false information on the claim form, or took other steps to misrepresent or mislead.
What Happens If Overpayments Are Not Discharged?
The EDD has several options to recover the overpayment(s):
- Take future unemployment benefits from you (which will not be too pleasant at that time when you need it the most).
- Recover it from state income tax refunds
- File a lawsuit against you and recover like any other creditor, via wage garnishment, bank account levy, etc.
Thus, it is a good idea to either work out repayment arrangements or look into bankruptcy to deal with the overpayment.
An experienced bankruptcy attorney can tell you whether you will likely be able to discharge an unemployment overpayment in your case.
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