Adversary proceeding in bankruptcy can prevent discharge of debt | The Colpitts Law Firm
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Bankruptcy May Be Your Option

Adversary proceeding in bankruptcy can prevent discharge of debt

Unemployment is a leading cause of bankruptcy.  Even when unemployment benefits are available, they usually do not fully compensate for the income that was lost when the person was employed. But what happens when insult is added to injury and the Michigan agency that paid you the unemployment benefits tries to claim that the money they paid you was due to fraudulent behavior on your part?

This is a good example of why it is important to have a bankruptcy attorney to help guide you through the process. Any creditor can ask for an adversary proceeding which, if successful, will bar the bankruptcy court from discharging those debts. Some of these cases even seem to be due to overpayment by the Michigan Unemployment Insurance Agency, through no fault of the debtor.

In one situation, a man was laid off and approved for unemployment benefits. Due to numerous financial difficulties, they decided to file for bankruptcy. But an adversary proceedingwas filed to block the discharge of the debt the Agency claims the couple owes. After he found another job, his wages were garnished by the Agency, claiming that he had been overpaid. Not only does the Agency want the amount it claims it overpaid him, about $5,600, but it is also seeking penalties, bringing the total to about $30,000. Others who received unemployment benefits have been targeted as well with one claim totaling $70,000.

An adversary proceeding can be filed by a creditor who thinks that its debt shouldn’t be discharged in bankruptcy. Once this is filed, the debtor must fight to prove that the debt should be forgiven. If the creditor can prove some fraudulent activity in obtaining the debt, then it is possible that it may not be discharged, leaving the debtor still liable for the debt even after others are discharged.

In any bankruptcy case, it is important to know your rights as well as what objections your creditors may raise to having their debt discharged. This case is an excellent example of a debt that the debtor didn’t even know existed, thinking that he had legitimately been paid unemployment benefits. Having the advice of a bankruptcy attorney can be crucial to anticipating any possible objections to your ability to discharge your debts.

Source: Fox 17, “Unemployment charges forcing bankruptcies; state contesting bankruptcies,” Darren Cunningham, June 7, 2015

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