I Owe Money for Unemployment Overpayment!

During times of difficulty while we are bombarded by the stresses of keeping the lights on and food on the table, we often do not pay as much attention as we should to the forms we are completing.  This can happen when applying for unemployment.  Perhaps you were able to return to work and did not complete the form correctly, and you were inadvertently overpaid unemployment compensation.  The Department of Workforce Services will try and collect these funds from back from you.

Are these Debts Dischargeable in Bankruptcy?

Well, it depends. First, the Department of Workforce must be notified of a bankruptcy case.  This means you or your attorney would have to mail (yes, actual snail mail) to the Department’s correct mailing address.  Next, you would have to wait several weeks from the time your case is filed until the due date for creditors to object to the dischargeability of its debt.  If the Department of Workforce fails to file its objection within the time frame required, it may be argued that the debt is dischargeable upon a successful completion of a bankruptcy case.

What if the Department of Workforce is Asserting a Lien on my Property? 

The lien may be avoided (removed) under the Bankruptcy Code.  A Motion to Avoid the Lien will have to be filed with the Court, and the Department of Workforce must be notified of the debtor’s intention to remove the lien.  If there is no objection, and the lien encumbers a debtor’s exemptions in property allowed under the Bankruptcy Code, the lien may be removed.  The Bankruptcy Court has ruled that because a lien held by the Department of Workforce is a judicial lien, it may be avoided and the debt unsecured.  This is a major difference between liens obtained by the Dept. of Workforce and liens obtained by the Dept. of Finance.

What is a Judicial Lien?

The Bankruptcy Code defines a judicial lien as a “lien obtained by judgment, levy, sequestration, or other legal or equitable process or proceeding.”  The Bankruptcy Court examined the procedures taken by the Dept. of Workforce to file its lien.  The Court found that because Arkansas law required the Dept. of Workforce to follow a series of steps or processes before obtaining its lien, their lien was judicial within the Bankruptcy Code’s definition and therefore the lien that may be avoided within a bankruptcy.

Should I Work Out a Payment Plan with the Dept. of Workforce on My Own and Avoid Bankruptcy?

Usually, the Dept. of Workforce is not the only creditor that is demanding payment.  If there are other creditors and debts that seem to be snowballing, you may want to speak with an attorney about your options.  If the Dept. of Workforce is requesting a payment plan you cannot afford, you may want to see how a bankruptcy case may benefit.  Bankruptcy law allows the Court to consider your actual income and your actual expenses, forcing creditors to accept a payment that you can afford.