I meet clients from time to time who have received an over payment of government benefits, such as unemployment compensation or Social Security benefits. Under particular circumstances, such over payment of benefits may be dischargeable in a bankruptcy. But in other circumstances, such an over payment of benefits may become a non-dischargeable debt in bankruptcy. This article details over payment of benefits and when such benefits may be eliminated through a chapter 7 bankruptcy or a chapter 13 bankruptcy.
If you got over-paid with a government benefit and the government realizes this over payment, the government may try to pursue this over payment by wage garnishment (distraint warrant through the State), filing a lien in some instances, offset of current benefit (Social Security, for example), or denial of a benefit for a period of time (unemployment benefit through the State). Facing these methods of recourse, people often look toward bankruptcy for some relief.
Generally, over payment of government benefits are dischargeable in bankruptcy. But, there are some exceptions to this. If the over payment of the benefit was the mistake of the government (State or Federal; unemployment compensation; Social Security benefits, etc.), this will be a dischargeable debt in bankruptcy. If the over payment was a result of fraud or misrepresentation by the recipient of the benefit, this over payment may not be dischargeable.
Like any other creditor, Oregon and the Federal government have only a certain amount of time (about 90 days) to file an objection with the bankruptcy court to determine that the over payment is a non-dischargeable debt in the bankruptcy. Often, the State and the Federal government will file this objection if there is clear evidence that there was fraud or false pretense involved in obtaining the benefit or the level of benefit originally. If the State and Federal government have received proper notice of the bankruptcy yet fail to file an objection, this debt will be discharged through the bankruptcy.
For example, if the government makes a mistake in calculating a benefit amount and over pays a person, by no fault of that person, this debt should be dischargeable in bankruptcy. However, if a person, for example, is collecting unemployment compensation and is also working and collecting wages (when they should not be doing both), the government can argue the person continued to receive unemployment compensation through fraud and/or false pretense by continuing to claim unemployment compensation when he or she had a job. In this case, if the government files an objection in the bankruptcy, this over payment may become a non-dischargeable debt; meaning it will not be eliminated in the bankruptcy. If the government files such an objection and there are grounds to fight this objection, litigation in the bankruptcy court may pursue to determine if this debt is dischargeable or non-dischargeable through the bankruptcy.
If you have an over payment of benefits, and Oregon or the Federal Government is trying to collect on this over payment, please call me today to discuss what options you may have and if this over payment will be dischargeable in bankruptcy or not.