Employment Development Department accidentally overpaid thousands of workers over the spring and summer during a rush to get relief to unemployed and idled Americans. Now they want the money back.
EDD can waive recovery of overpayments for most unemployment insurance when there is no fraud involved, but the Pandemic Unemployment Assistance program follows a different set of rules. It is administered as a form of disaster relief, and the statute that guides it blocks EDD from forgiving the debts.
Adding to the complexity, the PUA program gave new categories of workers—including gig workers and the self-employed—access to unemployment checks. But state unemployment systems were designed to calculate benefits based on traditional jobs, employer records, W-2 tax documents and verifying income with pay stubs. Re-engineering the systems to account for far more complicated self-employment income was bound to create problems, experts say.
So it’s understandable that mistakes have been made and many people have been overpaid.
Fortunately, a debt owed to EDD may be dischargeable in bankruptcy just like any other debt. The debt arising out of an overpayment can be categorized as fraud or non-fraud. EDD discusses it here https://edd.ca.gov/Unemployment/Overpayments.htm
It’s considered fraud if the EDD paid you benefits because you gave them false statements. If it’s fraud the debt is not dischargeable in bankruptcy. But it isn’t automatically non-dischargeagble. For the debt to be non-dischargeable EDD must file an adversary action in the bankruptcy court asking a judge to declare that you received the benefits because of fraud. EDD may or may not file that action.
If you received the benefits due to a mistake but not fraud then the duty to repay the benefits is dischargeable in bankruptcy. EDD can do various things to you to try and recoup the money. They can get reimbursement from any other source of money they owe you such as income tax refunds (even Federal). They can put a lien on your property.
If you think EDD is going to come after you for overpayment you might want to file bankruptcy sooner rather than later. That way you may be able to beat the lien and avoid many penalties and most of the interest.