Unemployment Compensation Overpayment and Bankruptcy

When a person has received an overpayment of unemployment compensation benefits, the Michigan Unemployment Insurance Agency charges fees and interest in the amount of four times the amount of the overpayment. For example, you were overpaid $5,000. The Michigan Unemployment Insurance Agency will charge you $20,000 in fees and interest in addition to the original $5,000 overpayment, for a total debt of $25,000.
How this debt is treated in bankruptcy depends on whether you file a Chapter 7 “Debt Liquidation” bankruptcy or a Chapter 13 “Debt Repayment” bankruptcy. For an explanation of Chapter 7 and Chapter 13, see my article entitled, “The Difference Between Chapter 7 and Chapter 13, and Which One Is Right For You.”
The original amount of the overpayment is dischargeable in a Chapter 7 bankruptcy, but the fees and interest are not dischargeable. The Michigan Unemployment Insurance Agency has agreed in many prior Chapter 7 bankruptcies to allow the fees and interests to be discharged in exchange for the original amount of the overpayment not to be discharged. In that case you would only have to pay back the original amount of the overpayment. This amount would not be due all at once, you could arrange to pay it over time.
If you file a Chapter 13 bankruptcy, you pay what you are able to pay to your creditors over a three to five year period. For an explanation of Chapter 13 repayment terms, see my article entitled, “How much Will I Have to Pay My Creditors in a Chapter 13 Bankruptcy.” Once you get to the end of your Chapter 13 case and you have satisfied all the requirements of the repayment plan, your debts are discharged. That means your debts no longer exist.
The above information is a general overview and is not intended to be used as legal advice. If you are considering filing for bankruptcy, the best thing to do is call our office at 248-557-3645 and schedule a free consultation so you can receive advice which is tailored to your specific circumstances.
By: Michael Benkstein, Esq.
Managing Attorney, Bankruptcy Department
The Law Offices of Joumana Kayrouz, PLLC


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