Repayment of Unemployment listed as a tax lien on credit report

[House4Me1Day]

I am getting ready to file a chapter 7 bankruptcy and my attorney said he will have to check into the judgement out of WA state (where I lived at the time) to repay unemployment I received.

Back in 2006 I was laid off and filed an unemployment claim. I got a job and stopped my claim. I moved within a few weeks of getting my job so I never got a notice that they wanted to review my job logs. Now it is on my credit report as a Tax Lien.... but it didn't have anything to do with taxes.

How do you think this will be handled in my bankruptcy? I have a strong feeling it will not be discharged though. How can they list this as a tax lien when it had nothing to do with taxes?

M

[justbroke]

If they claim it was for fraud, which it appears to be the case, then this would be non-dischargeable. It's a tax lien since the benefits are paid from taxes, and you pay into unemployment as a tax under the Federal Unemployment Tax Act (FUTA) and the State Unemployment Tax Act (SUTA). Any overpayment due to ineligibility is generally treated as a tax lien and would not be dischargeable.

I would ask an attorney more about this. It may all come down to how the State "sees" their claim.

[House4Me1Day]

I just find the whole thing BS. I never even know about this until 2010 when they garnished my bank account. I have called and called to get information and they just don't care. They say there is no way I could have looked for a job when I moved - that is why they were requesting my job logs. Well I had a job already so I wasn't looking for a job. I never received any notice or anything. But they just don't care. I could see if I was collecting and never responded to their requests but I wasn't even receiving unemployment when they sent the request because I had a job (and moved shortly after).

Irk..... Since I am in VA now and this is where my BK is being filed will it be how VA sees the claim? Will the trustee have any say in this?

[justbroke]

The Trustee has no say. If this was an overpayment then it gets special status as a tax lien. Since it is also an actual judgment and apparent is a judgment lien as well, as evidenced by your credit report, then it "enjoys" secured status. That means, it will would not be discharged.

As for notification, they may have sent you mail to your former address. If you did not elect to have your mail forwarded, then that may be the reason that you didn't receive any notices. Under most State unemployment laws, as far as I remember, you are required to keep actual logs. So you should have had at least several weeks of logs, since you typically "certify" each week you're receiving benefits, that you have looked for work. You need to take this from their view. They see fraud all the time and it is an actual requirement that you be able to produce your job search efforts on demand. It may even be in the "small" print somewhere that they can audit at any time and your benefits are subject to being deemed an overpayment (by fraud or administrative error).

You also did not mention how long you were collecting before you stopped claiming? This audit could have been for a myriad of reasons including a random audit, an anonymous "tip" that you were actually working, or an employer who challenged the payment of benefits.

Let me add this. You "could" fight it in the bankruptcy court by filing a Motion to Determine Secured Status and Value Claim and try to fight it in the BK context. If you win, you could make it an unsecured "claim" and then discharge it. However, that's litigation and you would need to understand your State's non-bankruptcy law as well as some Federal laws related to FUTA and overpayments due to lack of documentation.

[malf1204]

This is not true. I just had the same issue. The State of Illinois took my tax return after discharge claiming the debt was a "Tax". The Judge disagreed. Then they claimed it was fraud. The Judge said that had missed the deadline to file an adversary proceeding and ordered my money returned with interest. They paid. The Judge made it very clear that Alleged overpayment of Unemployment was NOT a Tax and the burden of proof was on the State to prove fraud through an AP just like any other creditor and in the absence of a timely AP the debt was discharged.

[justbroke]

Malf, your case is of the type of why I say to file (the Debtor should file) the Motion to Determine Secured Status and Value in this particular case for several reasons.

First, it depends on whether this was actually reduced to judgment and that the judgment is a lien. From what is posted, it looks like this went as a lien and the taxing authority actually did garnish the poster. In your case, you weren't threatened with any levy until they attempted to levy one of your Federal Tax overpayments. This is much different from a claim during the bankruptcy where there is no recorded judgment where the claim was already adjudicated.

Second, the specifics of the case, and whether they should have been granted a tax lien, is why I suggested the Motion to Value (Motion to Determine Secured Status and Value). Liens are special and when you hear "lien" you behave differently. The first rule of Bankruptcy is that all tax liens survive bankruptcy. The second rule is that when you are in doubt, see the first rule. The Motion to Value is a perfect tool for this where you have an otherwise secured debt.

Third, you found out, the hard way, that many creditors do not care about what the discharge order reads! They read your case that it was a "tax" and that the tax was not discharged. However, even if it were a tax, it was dischargeable in your case because it fits the exact pattern to dismiss a "tax" in a bankruptcy (the 3-2-220 rule).

Finally, never leave things to chance and simply say... they can't do that. Since this case is materially different from yours, with no recorded judgment on record, this may be in fact a tax lien which would be not only entitled to priority (if there was a distribution), but would also be non-dischargeable in a Chapter 7. Again, a Motion to Value would be the best course. Whether you could win on that would be whether the underlying judgment is in fact enforceable as a lien. Malf, in you case they missed the deadline to file an AP to see if they were a priority (non-dischargeable) "tax" so they missed the boat as a matter of a statute-of-limitations placed on dischargeability claims. Since they were otherwise dischargeable even as a tax, that's why your Judge ruled the way they did. If it was a tax lien... that's a different story. Your case was determined correctly.

[HHM]

Let's keep the issues separate:

How the unemployment over-payment should be reported on a credit report and how it should be treated in BK are different issues. I agree with Malf, that on its face, an unemployment overpayment is not a tax for purposes of 523. However, for credit reporting, it is likely either the state Dept. of Revenue that collects the overpayment, or state law provides some sort of lien mechanism, and all things considered, calling it a tax lien is the most accurate way to describe it.

[justbroke]

Ah, I misread. I re-read but thought it was reported in the "judgment" area as a judgment lien. I would still Motion to Value in the bankruptcy to make sure it has no special secured status. So, is it a lien or is it just being reported as a lien is my concern. I do agree with Malf (and you HHM), that if it's just an ordinary unsecured debt, it gets discharged just like everything else not protected by 11 USC 523.

[House4Me1Day]

Oh goodness this is all greek to me. =)

So what information should I provide to the attorney or can he get all the information that is needed? I only received unemployment for approx 10 weeks - the total amount before interest and what not was a little under $3500.

M

[justbroke]

Your attorney may list it as an unsecured debt. The question is, how is it listed on your credit report? Is it listed as a regular collection item or in the judgment/public records section of your credit report? That could make a difference in how your attorney deals with it.

Suffice it to say that how it will be treated will determine whether it is dischargeable. I suggested filing ta Motion to Value which "asks" the court to make the determination while the bankruptcy is active. I wouldn't want to see you posting months from now telling us that your checking account or pay was levied/garnished by the taxing authority. But, your attorney may say... just don't worry about it and not file any motions. It may just go away. No one can say with any certainty.

The point in my posting(s) was that if it's a lien, it may actually survive and you may have to pay it.

[House4Me1Day]

Thank you tons. I have a meeting with my attorney tomorrow and will mention the motion to value.

M