Can You Put an Unemployment Overpayment Under Chapter 7 Bankruptcy?
- Chapter 7 bankruptcy allows people making less than the median income in their state to cancel outstanding debts. Filers report all debts and all personal assets; a trustee checks the application and sells all nonexempt assets (federal and state laws allow filers to keep some personal property, such as a house, a car used for work and clothes) and distributes the proceeds to creditors. If no creditor files a complaint, a judge then cancels all qualified outstanding debts.
- When you file for Chapter 7 bankruptcy, part of the paperwork requires you to report all outstanding debts and the information of all creditors. You should report the unemployment overpayment as a debt, and the trustee may take the debt into account when handling your case.
- The bankruptcy code states that a debt cannot be discharged "to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss, other than a tax penalty." Unemployment benefits come from state governments and are partially funded by the federal government; as a result, they cannot be discharged.
- Occasionally, a state unemployment office pays a person more than he is eligible to receive. Sometimes, the office messes up calculations, but more often overpayments occur when an employer or former employee over-reports compensation or underreports money made while receiving unemployment benefits. If the unemployment office finds out, it can require you to repay some of your benefits. On the other hand, your unemployment benefits cannot be distributed to creditors.