Unemployment charges forcing bankruptcies; state contesting bankruptcies

Posted at 11:33 PM, Jun 07, 2015
and last updated 2015-06-07 23:33:30-04

MUSKEGON, Mich. -- Federal court records show high unemployment debt is causing many people to head to bankruptcy court for a fresh start. However, court records also show the state is contesting those bankruptcies.

Brandon Smith, a proud father of four, lives in Muskegon. He said he works long hours at an office furniture manufacturer to make ends meet, and it's been rough. A few years ago, Smith said he got laid off. So he filed for unemployment benefits to help pay the bills.

“They approved me at the beginning. There wasn’t no problem. I was following the steps. I was calling MARVIN, doing the steps that I had to do," he said.

Months later, after going back to work, he said he learned his wages were being garnished by the Michigan Unemployment Insurance Agency. Apparently, he had been overpaid by the UIA and wasn't eligible for the benefits he received.

“How I was supposed to know they overpaid me?" Smith asked rhetorically.

According to federal court records, the state claims he collected $5,600 fraudulently. The state wants the money back, plus penalties and interest. That's about $30,000 total.

“It kind of blew my mind because here I am saying I just got this job, and now I got to have garnishments coming out my check," Smith said.

He added, "I could hardly provide for my family."

Between the garnishments and his intercepted 2014 tax refund, Smith said about $7,000 has been recouped by the state so far. That's more than what he collected in unemployment. He said they've lost a lot, including two repossessed vehicles. Smith said he’s received no other assistance from the state but said he's had to depend on family and his faith to survive.

“There are some people who take advantage of unemployment, but you have those who [are] really trying to make it in life," he added, "just get a little assistance for the time being.”

Smith said he doesn't believe he did anything wrong, but he chose not to fight it. With mounting bills and no other options, Smith and his wife LaQuesha decided to file for bankruptcy. In addition to general expenses, he said a lot of money has been spent on gas. He said his baby was born with a medical condition which had them driving back and forth to Grand Rapids' Helen Devos Children's Hospital everyday.

The state attorney general’s office is fighting to block the bankruptcy filing and has filed what’s known as an “adversary proceeding” to make the Smiths pay anyway. In the month of May alone, public records show the state filed eleven lawsuits in the state's Western District bankruptcy court, specifically against people with unemployment debt. That’s how the Problem Solvers tracked down the Smith family.

The Problem Solvers have also spoken with bankruptcy attorneys from different law firms who said they’ve seen unemployment debt as high as $70,000. They said the debt is usually successfully discharged in a bankruptcy, until the state objects with an adversary proceeding.

“They basically are alleging that you obtained this debt or incurred this debt through essentially fraudulent means," Greg Ekdahl, a bankruptcy attorney with Keller and Almassian said.

Jeffrey Mapes with Mapes Law Offices said, “They really tend to pick on these people, and for the life of me I can’t figure out why."

He added, "Certainly, we’ve got enough problems in our state that there are better things to be doing then kicking people when they’re already down.”

Mapes suggested, “I think there really needs to be a more transparent system. There needs to be a higher burden of proof on the unemployment agency to show that there was actual fraud here, and if there were mistakes, let’s figure out the mistakes and figure out a way that we can repay the amount that was ineligible."

"But to try and get these fraud penalties when you don’t have to show that they had any bad intent, simply that they made a mistake, that’s just asinine," he said.

Both parents are working to provide for their children, and the Smiths said the state needs to stop and consider the toll this is taking on families.

"I just wish they'd give us a chance. Just give us a chance," Smith said.

It's open litigation, but the Problem Solvers reached out to the state attorney general’s office for comment and are waiting to hear back. We'll report the response when we get it.

There is also a pending federal lawsuit against the state on the persistent unemployment fraud claims. The state hasn't yet responded to the lawsuit. FOX 17 has been denied repeated requests for interviews with the governor’s office on the general issues.

Instead, a statement was released that said the state needs to be responsive to taxpayers. It adds the following:

“We understand that there is pending litigation concerning this situation, which limits what we can discuss. We also are unable to discuss particular situations because of privacy concerns," Dave Murray, deputy press secretary for Governor Rick Snyder.

Stay with FOX 17 on this continuing investigation.

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