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Can I Discharge an Unemployment Overpayment in Bankruptcy?

Millions of Americans have lost their jobs thanks to the COVID-19 crisis. This has sent many households into financial distress, even with unemployment payments helping bridge the gap.

Now imagine that you’ve been notified that you were overpaid unemployment insurance—and it’s your responsibility to pay the state back. Suddenly, bankruptcy may look like your only option. Can you discharge unemployment overpayments in bankruptcy, or is that one of the rare debt types that cannot be discharged?

Unemployment Overpayments and Bankruptcy

Ohio officials recently announced that the state overpaid unemployment to the tune of $1.2 billion. Even if you received a notice that you were overpaid—and owe the state money as a result—you still have some options available.

First, you may be eligible for a waiver. If the mistake was a clerical error on their end (and not fraud on your part), Congress’s Continued Assistance Act makes it possible for states to forgive and waive overpayments. However, Ohio doesn’t have a set policy on waivers yet, so you may need to pursue another option.

Next, you can file an appeal. A lawyer can help you navigate this complex process. If all else fails, your attorney can help you negotiate a payment plan with the state. These options could help you avoid filing for bankruptcy, which would allow you to avoid credit and related consequences.

If you do choose to file for bankruptcy, here’s the good news: there’s nothing that exempts unemployment overpayments from being discharged. You can file for Chapter 7 or Chapter 13 bankruptcy—the right type will depend on your financial situation. If the debt is massive (some Ohioans report that they were overpaid tens of thousands of dollars), and you are ineligible for a waiver or payment plan, this may be the best choice.

Discuss Your Options with an Attorney

When you’re considering bankruptcy, it’s important that you talk to an attorney. They’ll talk to you about your options, whether that includes appealing decisions, filing for a waiver or choosing which type of bankruptcy is right for you.

An experienced bankruptcy attorney will also help you strategize. For example, filing for Chapter 13 bankruptcy allows you to keep some assets, as long as you stay current on your payment plan. Your lawyer will assist you in negotiating the most favorable outcome—if you have to file at all.

For help with your bankruptcy case, call Dworken & Bernstein today.

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