California Unemployment Overpayments: Know Your Options - Los Angeles Bankruptcy Attorney - Southern California Bankruptcy Attorney | B & C LAW

California Unemployment Overpayments: Know Your Options

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Table of Contents
  1. Managing California EDD Overpayments
  2. Bankruptcy and EDD Overpayments

In the early days of the Covid-19 pandemic, unemployment soared in California and throughout the United States. In April of 2020, the California unemployment rate reached 16%, with rates even higher in some local areas. The following month, unemployment in Los Angeles exceeded 19%. 

While unemployment rates in both parts of the country peaked in the spring of 2020 and then gradually improved, unemployment remained high for many months, and has still not returned to pre-pandemic levels.

The federal government and most states–including California–responded to the crisis with various enhancements and extensions, allowing people who had been displaced to receive more unemployment benefits, and to receive those benefits for longer than they would normally have been eligible.

Benefits were even extended to some who normally aren’t eligible for unemployment compensation at all, such as freelancers and other independent contractors. 

These measures provided a much-needed bridge for many Californians suddenly cast out of work. Unfortunately, they also created an administrative nightmare. As new programs were implemented, applications skyrocketed, and state agencies were themselves impacted by the need for Covid-related precautions, mistakes were made. 

One common mistake was the payment of benefits to people who weren’t eligible, or who should have received benefits at a lower level or for a shorter period of time.

According to the U.S. Government Accountability Office (GAO), Americans were overpaid about $1.3 billion in unemployment benefits between April of 2020 and March of 2021.

Some of these benefits were procured by fraud. But, in many cases, people received unemployment benefits they weren’t entitled to, or received more benefits than they were entitled to, because of honest mistakes or through no fault of their own.

Managing California EDD Overpayments

When you receive a Notice of Potential Overpayment from EDD, the overpayment will be classified as fraud or non-fraud. If the overpayment was due to intentional misrepresentations on your part or other fraudulent activity, you will generally not be eligible for a waiver and can expect to pay a penalty on top of repayment of benefits. However, you may be able to appeal the determination of overpayment

In a non-fraud case, you have additional options. Most significantly, you will have the opportunity to provide financial information so the EDD can determine whether it would cause “extraordinary hardship” for you to repay the overpayment. If the department determines that repayment would cause extraordinary hardship, the repayment may be waived. 

The federal CARES Act also allows states to waive repayment of any non-fraud overpayment of Pandemic Unemployment Assistance (PUA) benefits. Guidance issued by the U.S. Department of Labor (DOL) earlier this year was intended to “help states address this important issue, providing them with greater flexibility to forgo recovery of improper payments from honest workers who continue to struggle and direction in handling cases where real fraud exists.” 

However, thus far, California has opted to assess waivers on a case-by-case basis, leaving many residents on the hook for thousands of dollars. That burden can be overwhelming for any working family, but especially so as many are still working to rebuild from job loss and other pandemic-related challenges.

Californians who don’t comply with repayment demands could face a wide range of consequences, including civil judgment, garnishment of wages, and attachment or real and personal property. In addition, as a government agency EDD can also intercept state and federal tax refunds and even lottery winnings. 

Options for Non-Fraud EDD Overpayments

If EDD has notified you of a potential overpayment, your next steps may include: 

  • Completing the Personal Financial Statement in hopes of securing a waiver
  • Appealing the determination of overpayment, if you believe you were entitled to the benefits you received
  • Making full payment to EDD to cover the overpayment
  • Entering into a payment agreement with EDD 
  • Discharging the overpayment obligation in bankruptcy

If you choose to repay the overpayment, think carefully about the best way to do so. For instance, you’ll be offered the opportunity to make payment by credit card, and many people see that as a better option than owing the government money. But, paying off an EDD overpayment with a credit card transforms that debt into a high-interest debt that may cost you significantly more over time. 

You should also be aware that if you enter into an installment agreement, EDD may still intercept your state and federal tax refunds until the balance is paid in full. 

Bankruptcy and EDD Overpayments

An EDD overpayment is an unsecured debt and doesn’t get any special treatment in bankruptcy. That means the debt could be discharged completely in a Chapter 7 case. In a Chapter 13 case, it would be treated like all other non-priority unsecured debts, meaning it might be wholly discharged, partly discharged, or paid in full over the three to five years of the Chapter 13 plan. 

The EDD could object to discharge if they claim the overpayment was received due to fraud on your part. But, it would be their responsibility to object and to persuade the bankruptcy court that the funds had been procured by fraud and were not eligible for discharge. 

To learn more about your options for managing a California EDD overpayment, talk to an experienced Los Angeles debt resolution attorney. The attorneys at Borowitz & Clark offer free consultations to help you make educated decisions about your financial future. You can schedule yours right now by calling 877-439-9717.

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