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Lehighton & Carbon County Bankruptcy Attorney / Blog / Bankruptcy / COVID-19 Unemployment Compensation Overpayments: Are Unemployment Compensation Overpayments Dischargeable in Bankruptcy in Pennsylvania?

COVID-19 Unemployment Compensation Overpayments: Are Unemployment Compensation Overpayments Dischargeable in Bankruptcy in Pennsylvania?

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In the wake of COVID-19, many people across America and the entire world have lost their jobs. Because states understand the impact of unemployment on families, for months now, eligible individuals across America have been receiving unemployment benefits designed to help them pay their bills as they search for jobs. However, that same help has become a headache for thousands of people across the United States of America. Pennsylvania residents have not been spared from this headache, with some now being asked to repay unemployment compensation overpayments.

With the financial stress that people are currently experiencing, repaying these overpayments will not be easy. Suppose you have already been notified that you were overpaid or suspect that you were overpaid and cannot repay the overpayment because your financial situation does not allow you. In that case, one of the options currently in your mind might be filing for bankruptcy. It is, therefore, vital that you learn whether Pennsylvania allows individuals to eliminate unemployment compensation overpayment debts.

UC Overpayment Debts and Bankruptcy

If it is because of your fault meaning that you committed “Fraud” that enabled you to receive unemployment compensation overpayment, then you cannot discharge the debt in bankruptcy. For instance, when you began collecting the compensation, you were eligible, and then after two months, you became ineligible because you became employed yet chose to withhold that  information, then the overpayment will most likely not be discharged in bankruptcy.

Assume you began collecting benefits, and for the first two months, you were unemployed. You got another job in the third month and began working as a full-time employee and received a full salary since. In such a case, once you got another job, you became ineligible for compensation. If you reported that you still had no job and continued receiving compensation, any overpayment tied to those months where you had a full-time job and a full salary but still claimed the UC is not dischargeable in bankruptcy. Additionally, overpayments that result from other forms of fraud are also not dischargeable in bankruptcy.

However, if you received overpayment after eligibility determination because of reasons that were not your fault, you can have the overpayment debt discharged in bankruptcy. For example, some individuals in Pennsylvania received overpayments due to state labor department staff and computer errors. A vendor who prepared duplicate payments led to overpayments. If you are among the individuals who received an overpayment due to this error, the debt is dischargeable in bankruptcy.

Generally, you can discharge an overpayment of unemployment compensation in bankruptcy as long as the overpayment was due to the State or Federal government’s fault.  If your overpayment is can meet the legal burden of “fraud” being committed on the Commonwealth, then you may be subject to bankruptcy court litigation of the Commonwealth objecting to your discharge of that overpayment.

There is a grey area emerging under existing law as to whether overpayments are considered fraudulent, which may result in future bankruptcy court litigation.  If you need debt relief and the Commonwealth has sent you a letter alleging overpayments of unemployment compensation, it is imperative that you contact an experienced bankruptcy attorney right away.

Generally, you can discharge an overpayment of unemployment compensation in bankruptcy as long as the overpayment was due to the State or Federal government’s fault.  If your overpayment  can meet the legal definition of “fraud” being committed on the Commonwealth, then you may be subject to bankruptcy court litigation of the Commonwealth objecting to your discharge of that overpayment.

Not too far dissimilar to unemployment compensation, social security overpayments may be discharged as well unless fraud has been committed. Under Federal 3rd Circuit law, an overpayment on social security is a dischargeable debt and withholding current social security benefits to offset pre-petition overpayments may violate the automatic stay of the U.S. Bankruptcy Code.  See Lee v. Schweiker, 739 F.2d 870 (3d Cir. 1984).

Contact Us for Help Today

Unemployment compensation overpayments are not categorized as non-dischargeable debts in bankruptcy under either a Chapter 7 Bankruptcy or Chapter 13 Bankruptcy. Suppose you are among those people who are currently under pressure to repay unemployment compensation overpayments that you received because of the negative impact of the COVID-19 pandemic. In that case, bankruptcy can offer you relief because the automatic stay will stop the state’s collection efforts. Contact an experienced Lehighton & Carbon County bankruptcy attorney at The Law Office of Adam R. Weaver, Esq. today at 570-818-4888 to receive help.

Resources:

cbsnews.com/news/unemployment-benefits-some-states-overpaid-repayment/

uc.pa.gov/Documents/UC_LAW.pdf

https://www.weaveresq.com/when-is-the-best-time-to-file-for-personal-bankruptcy/

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