Are COVID-19 Unemployment Overpayments Dischargeable in Bankruptcy?

Overpayment for unemployment is one of the most unfortunate ways someone can accumulate debt. If you’re collecting unemployment benefits because you lost your job during COVID-19, you are already in enough of a financially vulnerable position. You shouldn’t have to deal with the government’s mistake because someone allotted you more money than you should have received.

Regardless, one of two things may happen in this scenario: Your future unemployment checks will be reduced to compensate for the overpayments, or you’ll get a bill to repay what was overpaid to you. In either situation, you may experience new financial hardship while you’re still out of work. If the government wants to collect the overpayments in one fell swoop, though, you could be on the hook for hundreds or even thousands in unemployment overpayments that you may not be able to afford.

You might have other debts that you can no longer pay, so you may be considering whether or not discharging it all in bankruptcy can provide the relief you need. While not all debts can be ejected through bankruptcy, the good news is that unemployment overpayments in Pennsylvania can be.

Discharging Unemployment Overpayment Debt in Bankruptcy

As long as you are not at fault for the overpayment of unemployment benefits – which would be considered fraud – such debt can be discharged in bankruptcy. Examples of committing fraud to receive an overpayment can include misstating your income during your previous employment to receive more benefits or withholding information about your new employment to continue receiving unemployment compensation.

That said, you might receive unemployment benefits for reasons that aren’t your fault. This can happen because of human and/or computer error at the state labor department, because a vendor prepared duplicate payments, or another such reason. Because the fault for the overpayment in these situations lays with the government, they can be discharged during bankruptcy.

Debts That Can’t Be Discharged during Bankruptcy

Many people erroneously assume that they can’t discharge unemployment debt in bankruptcy because it’s a debt owed to the government. This misconception may arise from the fact that other debts owed to the federal government, like most tax debt and certain fines, aren’t subject to discharge during bankruptcy.

The following are other common examples of debts that bankruptcy can’t wipe away:

  • Alimony
  • Child support
  • Debt from willful and malicious injury to another
  • Criminal restitution
  • Debts incurred through fraud
  • Debts incurred by providing false information
  • Debts not listed in a bankruptcy filing

If you are financially burdened by debts such as these, bankruptcy unfortunately can’t provide the relief you need. Still, though, it’s good to know that you don’t have to stay on the hook for overpayment of unemployment benefits when the government’s at fault.

If you want to learn more about how you can discharge debt through bankruptcy, reach out to the Law Office of Seni Popat, P.C. for help. We can assist clients who are dealing with overwhelming financial obligations and need legal assistance to help them get a fresh start.

For more information about how we can help, please contact us online or call (718) 340-3385.