Identification

• A state unemployment agency cannot permanently deny you benefits if you owe money for overpayment. The reason behind the overpayment plays a critical role in determining your eligibility. If you owe money due to fraud, the agency likely bans you from collecting unemployment benefits for a number of weeks, maybe even close to half a year in cases of fraud. If the overpayment occurred because of an error by the agency, you can still file for benefits -- assuming you qualify for them.
  
  

Considerations

• The unemployment agency probably will offset your debt with future payments if you decide to file for unemployment again. Depending on the size of the debt, the agency may take legal action to recoup the debt. A judgment on the debt may mean the unemployment agency places a lien on your property -- meaning you must pay the debt upon sale of the home -- or garnishes your bank account. If fraud occurred, you likely owe a penalty on top of your debt.
  
  

Considerations

• You probably do not have to pay back the entire amount of unemployment benefits you owe immediately. Most agencies agree to a repayment plan that lets you retain some benefits or pay a portion of your wages once you find work again. You may not actually owe the money, because agencies can mistakenly identify some unemployment benefits as an overpayment. However, the onus is on you to prove that you received the correct amount of benefits or that the overpayment was not as large as the agency calculated.
  
  

Tip

• When you cannot figure out if you truly owe money to the unemployment agency or need help proving the overpayment did not occur due to fraud, hire an attorney. He may be able to help you eliminate the debt. For example, all unemployment agencies will forgive the debt if you can prove that repayment would cause an undue hardship and that you only used the proceeds for necessities. You can discharge the debt in bankruptcy as long as you are not receiving unemployment benefits and did not receive overpayment because of fraud. (ref 2)