Unemployment Overpayment of Benefits Penalty

Overpayment of unemployment benefits can be disastrous. This is because the State of Michigan adds on a penalty of 4 times the amount of the overpayment if the overpayment is greater than $500.00 and the overpayment was due to fraud. For example if a person receives an overpayment of benefits of $4,000.00, the penalty will be $16,000.00 which makes the total debt owed to the State $20,000.00. The State will also collect interest on this debt which will make it grow even higher. Furthermore the State can be quite aggressive in collecting the overpayment by garnisheeing or levying wages, bank accounts, and intercepting both State and Federal tax refunds.

Unemployment fraud may result from receiving income from unemployment when not entitled to benefits due to ineligibility due to employment income, or ineligibility due to disability or job termination. Many of these circumstances happen due to misinformation about eligibility for benefits.

Fortunately there is relief for those in this predicament. Although a debt due to fraud as determined in an adversary proceeding is not dischargeable in either Chapter 7 or 13, the penalty portion can be discharged in Chapter 13. A recent decision by a Judge in the Eastern District of Michigan ruled that the penalty portion of the overpayment of unemployment benefits is dischargeable in Chapter 13. There is no discharge for the penalty portion in Chapter 7.

A Chapter 13 is a reorganization or repayment plan which can consolidate your bills. These plans can last from 3 to5 years. Under a Chapter 13 plan a person can maintain their property and work out a repayment plan for their debts. The amount a person pays is related to their ability to pay. A person with unsecured debt such as unemployment benefits, medical bills or credit debt need not pay anything back towards these types of debts if their income does not allow for it.

For more information on the process of Chapter 13, please contact our office.