Bankruptcy Lawyer Bryan W. Stone answers the question: “Are my 401k and IRA protected in bankruptcy?”
In a horrifying bit of news for residents of Michigan, critics say that a state agency may be responsible for forcing hundreds and maybe even thousands of people into unnecessary bankruptcies. Reports indicate that Michigan’s Unemployment Insurance Agency has filed a number of false claims alleging that individuals have been overpaid unemployment benefits. These claims then force otherwise financially stable individuals into bankruptcy, at which point the UIA extracts massive settlements in exchange for eliminating the debt.
The issue first came to light after bankruptcy attorneys across Michigan noticed an explosion in the number of cases being brought by the state Attorney General’s Office to recover overpayment of unemployment benefits. These claims resulted from a recently implemented process known as the Michigan Integrated Data Automated System (MiDAS). MiDAS works by automatically scanning and analyzing previous unemployment payments to detect cases of fraud. The system went online back in October of 2013 and since then has resulted in thousands of requests for compensation.
In Michigan, the laws are written in such a way that overpayment of unemployment benefits can wind up costing people quite a bit of money. Not only would the recipient be required to repay the money, but fines are assessed at a shocking 400% rate. In one case, a woman was alleged to have been overpaid by $8,700, though the state claimed that she now owed $44,000 due to fines and late fees.
Though these steep fines are bad, they aren’t nearly the worst part of the story. The worst part is that the MiDAS system is apparently flawed, so much so that officials have admitted it had an astounding 93% error rate. That’s right, 93%. That means the vast majority of those claims alleging overpayment of unemployment benefits were wrong. The problem is obvious, hundreds and thousands of people were badgered into paying to settle claims they didn’t owe or, even worse, forced into bankruptcy as a result.
Because Michigan’s UIA has the power to garnish wages by simply sending an employer a letter, individuals being targeted would frequently find themselves having to make do with a 25% pay cut after the agency sent their employer a garnishment letter. Most people can’t survive with 25% less pay, especially when it comes out of the blue, and this led many to file bankruptcy. Sadly, the law prevents unemployment benefits from being discharged in bankruptcy, meaning even those who went as far as filing bankruptcy were still not able to escape the debts without settling. The UIA would agree to settle if the individual paid a 100% penalty in addition to the alleged overpayment amount.
Based on the number of bankruptcy cases involving jobless claims filed between mid-2015 and mid-2016, experts believe that at least hundreds, but maybe as many as 2,000 people were forced into bankruptcy due to the UIA. Attorneys that decided to fight cases rather than settle say that only 8% of MiDAS fraud findings were upheld when challenged, sadly, a figure that the hundreds of people forced into a bankruptcy settlement never knew. Critics say that these settled bankruptcy cases should be reopened and payments should be refunded if they can be proved false. Though it can’t undo all the harm caused by bankruptcy, it’s a step in the right direction.
If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.
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