By Ryan C. Wood
First of all there are many reasons why a California unemployment overpayment may happen. It is usually a shock for most people when they receive a letter that says they have to give back benefits they already received and spent. Hopefully there is no fraud involved. And yes, they will ask for the money back once it is discovered. If you cannot afford to pay it back or are having other financial problems the debt can be discharged when filing for bankruptcy protection just like a credit card debt or other unsecured debt.
There are of course some exceptions. The overpayment cannot be due to fraud or that you collected benefits when you were not eligible. Even then the California Employment Development Department has to object to the discharge of the debt you owe them. The EDD has to sue you and prove that the overpayment should not be discharged in your bankruptcy case. This is no easy or cheap task. The EDD does sue people in California State Court to obtain an enforceable judgment. The EDD will then most likely attempt to garnish your wages if you are currently employed. Filing bankruptcy will not only discharge the California unemployment overpayment but also stop the garnishment of your wages. As experienced bankruptcy lawyers we have had a number of clients that were sued by the EDD in state court prior to seeking our services. We have yet to have a client sued in bankruptcy court to prove the debt should not be discharged. Please be warned that anything that happened in the past is no guarantee of the same result in the future. Your case could be the one in which the EDD decides to sue and prove the EDD debt should not be discharge due to your alleged fraud.
One of the drawbacks of successfully discharging an overpayment when filing for bankruptcy is if you ever need to receive benefits because you are laid off or lose your job in the future. The EDD has a right to recoupment even after you receive a discharge of the debt. This means they will withhold some of your monthly benefit you would normally have received until they get all of their money back. If you were supposed to receive $900 in benefits it might be reduced to $700 a month until the debt owed to them is paid in full. Some bankruptcy attorneys in San Jose mistakenly believe the automatic stay or order of discharge will prevent recoupment. If you never need unemployment benefits in the future it will not be an issue.
You can get rid of this type of debt when filing under Chapter 7 and/or Chapter 13 (depending upon the circumstances you may not receive a complete discharge of your unsecured debts when filing a Chapter 13 plan of reorganization). To recap, yes California unemployment overpayments are dischargeable in bankruptcy.
