Questions about debts or bankruptcy? Call Doug Beaton, a local specialist in American bankruptcy law.

Debtors who have been notified by a state unemployment agency that they have been overpaid — and also that the state would like to be re-paid, pronto — might be able to discharge such a debt with a bankruptcy case.

Or they might not be able to. It really depends — on the particular facts of each case.

First the basic law: unemployment over payments are not taxes, and are generally discharegable as unsecured debts.

But debtors need to be brutally honest with themselves before charging off to bankruptcy court. Over payments are often the result of working and earning while still collecting an unemployment check, and when this is “discovered” by the state, reprisals ensue.

One response by the state would be to challenge the dischargeability of the debt in bankruptcy court by alleging fraud under section 523 of the bankruptcy code. In that event, the debtor will get a trial on the issue in front of a bankruptcy judge, who will decide whether the debt gets discharged or not.

That didn’t go so well for the debtor in the Searle case in New Hampshire recently. She collected a little more than $14,000 during a period of unemployment, which the state now wants back, because it found out she had done a little part time work during the same time.

This debtor did basically two things wrong: First she seems to have invented her own rule that earnings of less than $350 per week didn’t have to be reported on the unemployment agency’s internet check-in system.

Second, the debtor testified that she went for an in-person interview with a state employee in 2010, when she applied for an extension of benefits. The debtor said the interviewers “had everything in front of them,” meaning all of her earning information, and that therefore, the state was aware of her situation and compensated here anyway.

That MIGHT have worked, except the bankruptcy judge in New Hampshire had no idea of what “everything” was, and therefore it could not conclude that the state was remiss in relying on the debtor’s untrue submissions that minimized her earnings from work.

The moral of the story? Unemployment over payments are technically dischargeable in bankruptcy. But be careful that the over payment is actually due to bureaucratic bungling, and not semi-honesty on the debtor’s part. And be sure everything is documented — on old-fashioned paper, preferably!

by Doug Beaton

On the bankruptcy questionnaire I give to prospective clients, the very first thing I ask them to value is their jewelry.

There’s a reason for that: it’s not that jewelry is subject to forfeiture in bankruptcy (in fact, there are generous allotments for debtors to keep jewels), but that it’s something that they are likely to show up wearing at the meeting of creditors in their case, and an alert trustee may notice a discrepancy with what is actually declared on the forms.

Something like that played out in Boston today, when a debtor who had already drawn the attention of the US trustee’s office showed up wearing eyeglasses from Lenscrafters that cost north of $1000. The case trustee, who had apparently been in the market for glasses himself this spring, spied the pricey frames.

It was pretty clear from the case that this woman was going to be “invited” back next month for a second grilling no matter what, but she didn’t help her cause by flashing the fashionable eyewear. Memo to debtors: there’s no need to dress down on purpose for a bankruptcy hearing, but you do need to make sure what you do wear is fairly listed on your schedules when you file the case!

by Doug Beaton

If you hang around bankruptcy lawyers long enough, it won’t be long before you hear talk about “what’s on the I and J.”

This sort of inside baseball talk refers to Schedule I and Schedule J, on which debtors are required to list all their sources of income (on I), and all their household expenses (on J).

Both schedules are based on monthly estimates.

Their importance lies at the bottom of Schedule J, where expenses are subtracted from net income, and we find out if the debtor is operating in the black or not.

In Chapter 7 cases, one mistake lawyers make is not “spending” the client’s money on schedule J. If there is a large positive balance each month, the trustee is sure to suggest that the case be converted to chapter 13, so that amount can be used to pay a dividend to creditors each month.

On the other hand, if the case has been filed in Chapter 13 on purpose (e.g. to avoid a foreclosure), there had better be a positive amount left over each month, or else the case isn’t “feasible.” Or to state it another way, by the debtor’s own declaration, there isn’t any money to fund a plan.

So preparation of these forms requires not only accurate budgeting by debtors (occasionally something in short supply), but a good sense on the part of the attorney on what the goal of the case is going forward.

If you are filing a bankruptcy case, know which chapter you want to be in, and you’ll know how much the debtor can “spend” on Schedule J.

For viewable and printable copies of these schedules, click on the links below:

Schedule I

Schedule J

by Doug Beaton