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Filing Bankruptcy To Repay An Unemployment Overpayment In Mississippi

On Behalf of | Feb 8, 2022 | Bankruptcy

During the COVID-19 pandemic, many residents of Mississippi relied on unemployment benefits to help them pay bills and feed their families. In addition, federal unemployment programs boosted state unemployment payments to help individuals who lost their jobs or were laid off because of the pandemic.

However, the Mississippi Department of Employment Security reports that thousands of residents received unemployment overpayments. Some individuals have received notices stating that they owe thousands of dollars to the government because of unemployment overpayments. The notices threaten collection by seizing tax refunds, filing liens, and garnishing wages.

Many people are frustrated and frightened. They were not aware that they became ineligible for unemployment benefits or received more money than they should have received. To them, they did nothing wrong. Therefore, why is the state demanding they pay thousands of dollars to resolve an overpayment of unemployment benefits.

Many families continue to struggle to overcome the financial hardship caused by the COVID-19 pandemic. Most people do not have thousands of dollars to repay unemployment overpayments. Likewise, many people do not have the funds to enter a repayment plan to resolve the overpayment.

Can You File Bankruptcy to Discharge an Overpayment of Unemployment?

While many debts owed to the government are not dischargeable through bankruptcy, unemployment benefits are not listed as a non-dischargeable debt in the Bankruptcy Code. Therefore, overpayment of unemployment benefits can be discharged through a Chapter 7 or Chapter 13 bankruptcy case.

When you file your bankruptcy petition, the automatic stay stops collection efforts by creditors. That includes the Mississippi Department of Employment Security. Once the agency receives notice of your bankruptcy filing, they cannot file a lien, garnish wages, or demand repayment of the unemployment overpayment without court approval.

The state would need to file an adversary proceeding (a lawsuit within your bankruptcy case) alleging the debt should not be discharged. The state would need to prove that you committed fraud for the debt to be non-dischargeable. For example, you failed to notify the unemployment office that you were working to continue receiving unemployment benefits or misstating your previous income to receive more benefits.

Recouping Discharged Unemployment Overpayments from Future Benefits

It is essential to consider future unemployment benefits before you file bankruptcy to discharge overpaid unemployment benefits. In many cases, the state may have the right to deduct a discharged overpayment from future unemployment benefits. Therefore, you may not receive future unemployment benefits until the discharged overpayment is repaid.

Filing Chapter 13 vs. Chapter 7 to Repay an Unemployment Overpayment

If you have other debts that you cannot afford to pay, filing bankruptcy might be an option to consider. Filing bankruptcy eliminates many debts, including:

  • Credit card debts
  • Medical bills
  • Some old income tax debts
  • Personal loans
  • Most personal judgments
  • Old lease or rent payments

Therefore, filing a Chapter 7 bankruptcy case could eliminate all of these debts, including your unemployment overpayment. However, you must meet income qualifications to receive a bankruptcy discharge under Chapter 7.

Income Qualifications for a Mississippi Chapter 7 Bankruptcy Filing

If you want to get rid of a debt for overpaid unemployment benefits through Chapter 7, you must pass the Chapter 7 Means Test. The Means Test compares your average annual income to the median income in Mississippi. The median income is based on a household of the same size.

“Passing” the means test means that your average annual income is below the median income level for your household size. If so, you are presumed to be eligible for a discharge under Chapter 7. However, if your income is above the median income level, your disposable income must be below a specific amount to file Chapter 7. If not, you would need to file Chapter 13 to get rid of the unemployment overpayment.

Benefits of Filing Chapter 13 to Repay Unemployment Overpayments

You may want to consider filing Chapter 13 to repay unemployment overpayments. Through a Chapter 13 plan, you can repay the state the debt you owe so that you do not need to worry about the impact of a bankruptcy discharge on future unemployment benefits.

The term for most Chapter 13 plans is 60 months. Therefore, you can spread out the payments over five years. Furthermore, a Chapter 13 bankruptcy case can help resolve debts that are not dischargeable in bankruptcy.

Several debts are not eligible for a bankruptcy discharge. Those debts include:

  • Most income tax debts and debts owed to government entities
  • Unpaid alimony or spousal support
  • Child support arrearage
  • Debts incurred through fraud
  • Criminal restitution
  • Judgments related to DUI accidents

If you file under Chapter 7, you continue to owe these debts. The creditors may continue all collection efforts after the bankruptcy case ends.

However, in Chapter 13, you can spread these debts over 60 months. Then, when you complete your bankruptcy plan, the debts are paid in full.

Furthermore, if you are behind on your mortgage payments, a Chapter 13 bankruptcy case can help you keep your home. The past-due mortgage payments are paid through your Chapter 13 plan. Also, you might be eligible to reduce your car payments by including your car loan in a Chapter 13 plan.

Other Options for Overpayment of Unemployment Benefits

If you believe that the overpayment is incorrect, you may want to consider filing an appeal. You might want to speak with an attorney about this option because arguing the merits of an appeal for an overpayment could be complicated. You may also consider a repayment plan with the state. However, the monthly installment payments could result in a financial strain that might cause you to get behind with other bills.

Contact Our Madison Bankruptcy Attorney for a Free Consultation

Dealing with an unemployment overpayment and other debts can be stressful. However, you do not need to deal with your debt problem alone. Our legal team is here to help you find an affordable solution to your debt problems.

Call Saxton Law, PLLC, at 601-255-0813 to schedule your free consultation. You may also schedule a free consultation with a Madison bankruptcy lawyer online.

If you have questions about bankruptcy, you may also access our free library of bankruptcy articles and blogs on our website.