Sometimes an unemployment overpayment will go away in bankruptcy, but usually it survives. Whether it goes away or not depends on whether the overpayment . Chapter 13 Bankruptcy will also stop garnishment for unemployment for up to 5 even if the overpayment doesn’t get discharged in the bankruptcy. This is because bankruptcy gives you an automatic stay that prevents any act to collect a debt. This automatic stay even prevents student loans from garnishing your pay, so it works on all types of debts and attempts to collect debts.
HOW DO OVERPAYMENTS OF UNEMPLOYMENT COMPENSATION HAPPEN?
Sometimes the MN unemployment compensation office, called the Department of Employment and Economic Development (DEED), gives people money and then later decides that the money should never have been paid in the first place. If this happens, then the DEED will decide that you owe that money to the DEED as an overpayment. There is a penalty for it, and the interest on the balance increases very quickly.
2 REASONS WHY PEOPLE GET UNEMPLOYMENT OVERPAYMENTS IN MINNESOTA
1) They kept getting paid unemployment compensation even after starting a new job. In Minnesota, you must claim unemployment benefits every week and tell the DEED how many hours you worked, if any, for the week. Sometimes people say that they didn’t work any hours when they actually did work some hours. If you owe an overpayment for this reason, then it will not be discharged in bankruptcy.
This situation is actually fraud because the employee said that they weren’t working, but then it turned out that they had some hours anyhow. Debts for fraud are not dischargeable in bankruptcy. The DEED still has to file something into the bankruptcy and do some attorney things to make this count as fraud, and if they don’t, then it DOES go away, but in Minnesota, the DEED usually does fight this kind of overpayment in bankruptcy. That thing which the DEED files is called an “adversary complaint.”
Walker & Walker often has success negotiating down the balance of the overpayment as part of the bankruptcy if the overpayment happened a long time ago.
2) They collected unemployment while they weren’t working, but then the employer appealed the unemployment award and the employee lost the unemployment appeal. In this case there usually isn’t fraud, so it goes away in bankruptcy. All the applicant says to DEED is that they aren’t working because their employer terminated the employment.
Assuming the employee didn’t say something untrue in the application, like maybe that the employee was fired, when in reality the employee quit the job voluntarily. If you get denied unemployment after an appeal, make sure to save the letters that you get from DEED. These will be very important for proving that the debt is dischargeable.
WHAT HAPPENS IF THE OVERPAYMENT CAN’T GO AWAY IN BANKRUPTCY?
The DEED can garnish your paychecks AND take MN tax refunds, including the Renter’s Refund, Property Tax Refund and the MN Income tax refund. Because the interest compounds every month, the balance tends to go up very fast. An unemployment overpayment is one of the worst kinds of debt that a person can have in Minnesota for these reasons.
The statute of limitations for it is 10 years from the date of the overpayment, so it doesn’t last forever, but the statute of limitations to collect a normal debt is only 6 years. Luckily, the 10 years does continue to pass if you are in a chapter 13. Chapter 13 stops them from taking tax refunds or garnishing wages, and sometimes is the best way to handle an unemployment overpayment.