Debtor Can Keep Unemployment Benefits in Bankruptcy

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By Diane Davis

A debtor can keep $12,678 in Connecticut unemployment benefits despite allegations that she wasn’t qualified to receive them, the U.S. Bankruptcy Court for the District of Connecticut held March 30 ( Conn. Dep’t of Labor v. Davis (In re Davis) , 2017 BL 103710, Bankr. D. Conn., No. 14-31962 (JAM), 3/30/17 ).

Cynthia Davis lied when she represented that she hadn’t earned any wages and was legally eligible to receive unemployment benefits, the Connecticut Department of Labor argued.

Davis had in fact been employed when she received unemployment benefits, and must pay them back, the agency said. That debt should be non-dischargeable in her bankruptcy, the agency argued.

In general, Bankruptcy Code Section 523(a)(2)(A) provides that debts for money, property, services, or an extension, renewal, or refinancing of credit can’t be discharged in bankruptcy if they are obtained by false pretenses, a false representation or actual fraud.

But CDOL failed to prove that Davis knowingly or fraudulently made a false representation with the “intent and purpose of deceiving” the agency, Chief Judge Julie A. Manning wrote.

Without a finding of fraud, the administrative penalties assessed by the agencycan also be discharged, the court said.

As part of the weekly application process to receive unemployment benefits, Davis, over the phone, had to verify her identity and certify that she earned no wages during the prior week. The answers were recorded and kept as an internal record.

The court found Davis’s testimony to be consistent that she never made a false statement regarding her employment and had always stated that she was working reduced hours.

Lawrence G. Widem represented CDOL; Davis represented herself.

To contact the reporter on this story: Diane Davis in Washington at DDavis@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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