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Unemployment Overpayment of Benefits Penalty

Please Note: We do not handle matters before the Unemployment Agency. However, we may be able to assist you with handling overpayments or penalties that have been adjudicated.

Many Michigan residents rely on unemployment benefits to get by after a seasonal layoff or unexpected termination. But when mistakes happen and you get more benefits than you are entitled to, the penalty for overpayment of unemployment benefits can create a financial disaster. You need the help of an experienced bankruptcy attorney to negotiate with the State of Michigan, discharge your debt, and get you back on the path to financial stability.

Why Michigan Unemployment Benefits Overpayments Happen

An unemployment overpayment can happen anytime you receive benefits that you weren’t entitled to receive. The reasons for these overpayments can vary from innocent to intentional, including:

  • Errors on your unemployment insurance application
  • Termination for cause from your prior employment
  • Ongoing disability that renders you unable to work
  • Failure to meet the Michigan work search requirements
  • Making yourself unavailable for suitable work
  • Failing to report part-time employment
  • Making false or misleading claims on your application (often called unemployment fraud)
  • Identity theft

What is the Penalty for Overpayment of Unemployment Benefits?

If you have been overpaid unemployment benefits, the State of Michigan’s Department of Labor and Economic Opportunity, Unemployment Insurance Agency will send you a letter notifying you of the overpayment. You will be expected to repay all the money you received as a result of the overpayment. In addition, the state will impose a penalty in the amount of:

  • 1 times the overpayment amount for a first offense
  • 5 times the overpayment amount for a second or subsequent offense
  • 3 times the overpayment amount for fraud (i.e. failing to report wage income)
  • 4 times the overpayment amount in cases involving identity theft

If you still owe payments on unemployment overpayment determinations made prior to July 1, 2018, the way the penalty was calculated will be different. Talk to your bankruptcy attorney to see how much you owe.

Remember that the penalties are in addition to the restitution of the original overpayment. The State also charges interest on the entire amount, so it is wise to act quickly to resolve any overpayment you have received.

COVID-19 Pandemic Unemployment Benefits Overpayments

Thousands of Michigan workers lost their jobs due to the COVID-19 pandemic shutdowns. Many turned to unemployment insurance to help them pay their debts while they waited for the state to reopen. During that period, the UIA waived work search requirements and facilitated workers’ access to federal benefits including Pandemic Unemployment Assistance (PUA) and Pandemic Emergency Unemployment Compensation (PEUA).

However, in March 2021, the Michigan Unemployment Insurance Agency notified thousands of claimants that their unemployment insurance application had been redetermined and that they had to pay back thousands of dollars in unemployment benefits overpayments. If you were one of those people, the best thing you can do is to protest the determination of overpayment as soon as possible. The UIA has said that penalties and interest will only be applied to cases of misrepresentation.

How to Settle Unemployment Overpayment

The Michigan Attorney General’s office is aggressively trying to collect overpayments of unemployment benefits. If you owe money to the State of Michigan, the Attorney General’s office can:

  • Garnish wages from your new employer
  • Recoup benefits out of your ongoing weekly unemployment benefits (up to 50% of your benefit amount, or 100% if fraud was involved)
  • Garnish your federal or state income tax refunds
  • Intercept Lottery winnings over $1,000
  • Terminate any remaining unemployment benefits

Often, your bankruptcy attorney can negotiate a repayment plan with the State of Michigan to settle unemployment overpayment claims and stop the collections efforts. You may also be able to appeal a determination that the overpayment was unemployment fraud by filing a protest with the state. This can reduce the amount of the penalty and make it more manageable to pay back.

Are Unemployment Fraud Penalties Dischargeable in Bankruptcy?

If you cannot afford to repay your unemployment overpayment or its penalties, the notice could turn you toward bankruptcy. The U.S. Bankruptcy Code says that fraud-based penalties are not dischargeable in a Chapter 7 or Chapter 13 bankruptcy. However, the penalty portion of the debt may be included in your Chapter 13 repayment plan, giving you three to five years to make installment payments on what you owe along with your other debts, and discharging whatever is left.

Because the Bankruptcy Code distinguishes between fraud penalties and other overpayment penalties, it is important to talk to a bankruptcy attorney as soon as possible after you receive the notice from the State of Michigan. The time to request an appeal of the UIA’s determination of fraudulent overpayment may be limited. If you miss your opportunity, you could be paying money to the State of Michigan for years to come.

If you are in need of an experienced, professional and compassionate Detroit bankruptcy attorney, please contact John A. Steinberger & Associates, P.C. today. Our bankruptcy lawyers are here to counsel you. Call us toll-free at (866) 690-2140 to schedule a free initial consultation.

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