Can You File Bankruptcy for Unemployment Overpayment?

Unemployment Benefits and Bankruptcy

Recently, the above question has come up with my free bankruptcy consultations with my clients who intend on filing Chapter 7 or Chapter 13 Bankruptcy.

During the COVID, thousands of businesses were forced to shut down, many Americans were left without a job, and millions applied for unemployment benefits.  In fact, over 2 million applications for unemployment benefits were filed.

After the pandemic, New Jersey employees are returning to work.

Bad News:

Many recipients that applied and received unemployment are receiving notices that their unemployment compensation was not valid.    Changes in federal rules on eligibility has caused approximately 250,000 New Jersey residents to become ineligible for pandemic unemployment compensation and were overpaid their unemployment benefits as a result.

Good News:

The good news is that as of February 8, 2022, the U.S. Department of Labor gave States authority to waive certain unemployment overpayments as long as certain requirements are met, and no fraud was committed by the applicant.

Overpayment Requirements to Be Dischargeable in Bankruptcy.

In the State of New Jersey, to receive your unemployment benefits, you must certify for benefits each week.  When you certify, you are usually asked specific questions.

Errors in Unemployment Payments by the State

The State of New Jersey can make an error.  If the State made an error, you do not have to pay back that debt and you can discharge that overpayment in bankruptcy.

Non-Dischargeable Debts in Bankruptcy – Fraud

Most debts will be dischargeable in Bankruptcy.    Under 11 U.S.C. Section 523 of the Bankruptcy Code, if you obtained credit through fraud or committed fraud and incurred debts, these debts are non-dischargeable.    Fraudulent reporting by a debtor to Unemployment is Fraud.

If you accurately answered the questions and there is no fraud, you can discharge the overpayment of unemployment benefits in bankruptcy.

I would be happy to meet with you for a free bankruptcy consultation and determine if filing bankruptcy (either Chapter 7 or Chapter 13 bankruptcy) is right for your particular situation.   Call me Ralph A. Ferro, Jr., Esq.

Can You File Chapter 7 on Unemployment Overpayment