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Discharging Unemployment Overpayments in Bankruptcy

Discharge Unemployment OverpaymentIn bankruptcy generally you can discharge the unemployment overpayments. Unemployment benefits or EDD overpayments (in California) are treated like any other debt in bankruptcy. They are not given special protections, even if they are owed to the state. Section 523 of the bankruptcy code lists those debts that are non-dischargeable in bankruptcy. An unemployment overpayment is not a debt that is listed as exempt from discharge. It is subject to discharge in a Chapter 7 and Chapter 13 bankruptcy. Filing for bankruptcy can provide significant relief from the collection efforts of the state. The automatic stay will help stop collection efforts from the state to pay back the unemployment benefits.

Unemployment benefits only pay a portion of the normal wages that individuals received from their previous employment. Unemployment benefits are generally paid based on calculations from your previous earnings. In California unemployment benefits are calculated based on a specific 12-month period. Overpayments in unemployment can result from a number of reason including incorrect calculations, payments issued for period in which the claimant did not qualify for benefits or reporting false information.

Can You Always Discharge Unemployment Overpayments?

The simple answer is no. If you obtained an unemployment or EDD overpayment as a result of fraud, then it may not be subject to discharge in bankruptcy. Section 523 of the bankruptcy code makes the following debts non-dischargeable.

(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—

(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;

(B) use of a statement in writing—

(i) that is materially false;
(ii) respecting the debtor’s or an insider’s financial condition;
(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and
(iv) that the debtor caused to be made or published with intent to deceive; or

If you submitted an unemployment claim that was false or you provided false information and as a result you were overpaid benefits, then it may not be dischargeable. When you file your bankruptcy case, the state unemploeyment department will be given notice of your bankruptcy case. They will be given an opportunity to file a complaint to determine dischageability. If they believe that the debt meets the requirements for being non-dischargeable then they must file a complaint in bankruptcy court. If they fail to file a complaint in your bankruptcy case then it will be discharged regardless of whether it was obtained by fraud. For more on non-dischargeable debts go to Non-Dischargeable Debts:

Can The Unemployment Overpayment Ever Be Collected?

Unemployment overpayments or EDD overpayments are subject to recoupment. This means that if you are receiving unemployment benefits they can continue to withhold benefits until the overpayment is fully paid back. In a sense this means that although technically the debt has been discharged in bankruptcy, you may still end up paying the debt back through recoupment. The automatic stay or a discharge in bankruptcy does not protect you from recoupment of the unemployment benefits.

  • How does recoupment work?-You may owe the EDD an overpayment of $3,000, as a result of them paying you an additional $150 a week in benefits. If you are still receiving EDD then the EDD may deduct $150 per week from your unemployment benefits even after filing for bankruptcy. They will deduct this amount until your overpayment is paid back in full.

Recoupment only applies where the claim for unemployment and overpayment arose out of the same transaction. The state unemployment agency would be able to recoup the overpayment as long as the overpayment resulted from the same claim that they are currently paying you on. Based on the reading of the requirements of recoupment it would appear that recoupment would not apply to any future claims for unemployment but only to the claim in which the overpayment arose. (This remains unsettled). If there is an attempt to collect an overpayment and it is for a separate unemployment claim, then the state may be subject to violation of the discharge injunction.

Comments

Leny, the EDD disability program is a worker funded program that is administered by the state. The garnishment of social security income is limited to federal government debts and does not include state debts. Your social security benefits should not be garnished for a state debt owed to the EDD for the disability payment.
I'm still waiting for a reply. Please help me. I've been having many sleepness nights thinking and worrying about this. Thank you so much.

The EDD Disability people have been sending me a bill for almost $7000 for about a year now. They claim that since their doctor dissapproved by disability status, I owed them this much money.. I’m not able to pay this money because I am now on fixed social security income. Money I received is just enough to live on and sometimes not enough. Can they eventually start taking the money out of my social security retirement benefits thru the Treasury Dept. ? Fraud was not involved in the overpayment. Just a matter of two different doctors’ evaluations. I am really worried that after a year of not being able to collect their money back, they will start garnishing my social securiy money. Please advise. Thank you so much.
Talk to a local bankruptcy attorney to determine whether you can discharge the debt without any potential issues in a bankruptcy. The other option is to call EDD and set up a payment arrangement for the overpayment. There are certain circumstances in which overpayments are also waived by EDD. You should call EDD and discuss your options.
I would contact your EDD and find out what is stated in your file. More than likely you will be seeing an offset for the EDD overpayments. They will generally issue a Notice of Overpayment Offset when they are intending to offset the overpayment. They can take from 25% to 100% of your benefits.
Hi, I just a letter from the edd that I need to pay them for overpayment of 30thousand dollars. I'm scared because I don't know what to do! My paycheck is all I have to pay the bills. And they did say they will garish 25%. Please give me some advise!!
Thank you,
Sandra Fallas.
i file bankruptcy and the EDD overpayments were included. But now i may be getting laid off and will need unemployment. How can i find out if EDD will offset my payments? can i call and ask ahead of time or will they notify me once i file? Id prefer to know upfront
It really depends on whether you were entitled to receive the benefits and accurately reported to the EDD when you were working part-time. If you failed to report your hours and continued to receive the unemployment benefits then the EDD will possibility claim fraud if you attempt to discharge them in bankruptcy.
It can be discharged in bankruptcy, as long as the overpayment did not result from fraud. For example if you collected benefits while working and you did not report to the EDD that you were employed then you fraudulently obtained the EDD benefits. The EDD will more than likely file a non-dischargeability claim if it involved any misrepresentation or fraud.
This depends on really whether you are were entitled to receive the EDD payments while you were working part time. Did you report to the EDD the party time work and did you get partial unemployment as a result of that. If you obtained EDD benefits because of misrepresentation or fraud where you stated that you were not working at all then there is a potential that the debt will not get discharged. The EDD may file a complaint in your bankruptcy case claiming the debt is not dischargeable due to fraud in this case. If the overpayments from the EDD were an error on their part then you should be able to discharge this debt.
You should talk to a bankruptcy attorney to determine if it is really not an option to start. EDD overpayments can be discharged in certain circumstances unless the overpayment resulted from fraud. You can always try to talk directly with the creditor to set up a payment plan. Even if the debt is discharged in bankruptcy EDD can try to argue that they have a right to equitable recoupment. This means that they can offset the benefits that they pay to you at a future time for the money owed. The case law is not settled on this. Try to contact the EDD right away to determine if they are willing to work out a payment option with you.
My boyfriend owes EDD about 30,000 for about a year now and the just sent him a letter that they will begin garnishing his wages about 25% each check. Should he see a lawyer to have something worked out regarding a payment plan or to lower the percentage of amount to be garnished. We know that bankruptcy is not an option, but we have no clue on what to do next and he just signed a lease for an apartment about a month ago. Do you have any suggestions.
I reieved edd payments and never found a full time job. I continued to reieve them will working part time and I was wondering if I can discharge them through bankruptcy,
EDD has sent me a statement that says I owe them $49,000 in over payment. Can this be discharged in any type of bankruptcy ...PLEASE HELP
EDD disability overpayment would fall under the category of a state benefit that would not qualify as tax debt owed to the federal government or a federal debt. Based on my evaluation, the state disability overpayment could not be used to garnish your social security benefits.
EDD is trying to collect disability overpayment from me. Their doctor rejected my disability status although my own doctor cerified my condition. I currently don't have any source of income. I start receiving SS benefits on May2012. Will they garnish my monthly benefits ?

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