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Can You Discharge Government Unemployment Overpayments?


During the COVID 19 shutdowns and pandemic, many people found themselves out of work. And for many people, unemployment compensation from the state was a lifeline for them. But the unemployment system, which was overwhelmed, understaffed, and difficult to understand for many citizens, often led to a problem: Overpayment of unemployment benefits.

How Overpayments Happened

For most people, overpayments happened very innocently. Maybe they didn’t understand the system or the forms that had to be filled out. Maybe they misestimated previous income. Maybe they forgot to report something that would have lowered the amount that they were paid. Some may have gotten employment, and been late in notifying the state that they were employed, resulting in payments being made that should not have ever been made.

Whatever the reason, that overpayment is a problem because the government doesn’t just look the other way: the government expects that it will be paid back for the amounts that it overpaid you—sometimes, even if the error was completely made by the government and not you. And it doesn’t matter if you have already spent the money and it’s not there to be repaid, which is the situation almost everybody is in.

Unemployment is Dischargeable

Contrary to popular belief, overpayment of unemployment benefits can be discharged in bankruptcy, even though it is a government debt. There is no one, all encompassing general exception that makes government debts non dischargeable.

The first question to ask is how much you actually (supposedly) owe in back debts. If the amount the government is saying you owe is small enough, it may not make sense to file for bankruptcy. However, if you have other debts that make it worthwhile to file a bankruptcy, the unemployment overpayments can certainly be included into your bankruptcy amounts.

The Fraud Exception

There is one exception when you may have a problem filing for bankruptcy: If the unemployment overpayment was a result of something that you did, knowingly and purposefully, in order to get more unemployment.

This is not unique to unemployment, but rather falls under the general fraud exception to bankruptcy discharges. You can’t discharge any debt that was obtained through lying, theft or fraudulent means. So, if the government does feel you purposefully falsified information, it could contest your request to have the debts discharged.

It is also a crime to actually lie or defraud the unemployment system. That means that if you suspect you may have done something knowingly and purposely illegal, you may be best not trying to file for bankruptcy to discharge those debts, in order to prevent bringing too much attention to yourself.

If you have no idea why you were overpaid, it is probably highly likely that you did not purposely or intentionally deceive anyone. In fact, the state even has a form you can fill out, to ask that they waive your unemployment overpayment debt, for good cause.

Contact the Boca Raton bankruptcy attorneys at the Law Offices of Stephen Orchard at 561-455-7961 for help if you owe the government money, and want to see if bankruptcy is the right option for you.




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