How over payment of unemployment benefits affects bankruptcy

Due to the economy, unemployment filings are high and so the issue of over payment of unemployment benefits is becoming a more prevalent issue in Bankruptcy.  Just recently cnn stated that the filing for unemployment in September reached a two month high.Over payment of unemployment benefits can happen in many very different ways.  A common one is when someone is working part time and doesn’t realize they are working over the minimal number of hours such that they should have received less unemployment benefits.

If you file for bankruptcy while still receiving benefits,  then the unemployment department may be willing to recoup the amount you owe them in overpayed benefits by deducting an amount from your future benefits until they are fully repaid.  Recoupment is exempt from the automatic stay pursuant to the bankruptcy code.  The Recoupment however is subject to the “same transaction” test and so in certain situations may not be allowed casino online casino gambling.  For example, court have found that over payment of Social Security benefits is a separate transaction from the obligation to pay future benefits, and thus recoupment was not allowed due to a lack of a single underlying transaction.  To determine whether or not the “same transaction” requirement has been met, the ninth circuit here in San Diego uses the “logical relationship test”.  Newbery Corp. v. Fireman’s Fund Insurance Co, 95 F. 3d 1392 (9th Cir. 1996).

If you file for bankruptcy and you are no longer receiving unemployment, then the over payment debt that you owe will be considered an unsecured debt and it will be considered dischargeable under the bankruptcy code.  Courts have held that debt to governmental agency for unemployment benefits is not a “tax” within the meaning of the code and thus is dischargeable.  In re Boston Regional Medical Center, Inc., 291 F. 3d 11 (1st Cir. 2002).

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