According to the most recent 2018 Veterans Administration Benefits Report, 5.2 million veterans and dependents receive some type of VA disability or survivors benefits. The average annual payment of between $12,000 and $17,000 is considered poverty level income for a family of two or more. Small wonder then that the percentage of veterans filing for bankruptcy protection is significantly greater than that of the overall population.
In order to eliminate nearly all common debts, a bankruptcy filer must file a Chapter 7 liquidation petition. In most Chapter 7 cases, unsecured creditors (such as credit card issuers) receive little if any repayment.
By contrast, those creditors in a Chapter 13 “wage earner” case receive payments based on the debtor’s disposable income under the terms of a court-approved plan. These monthly payments typically last for several years. Unfortunately, many Chapter 13 plans fail because debtors eventually find they can’t afford even these reduced payments.
As we discuss in our prior article on the bankruptcy means test, a debtor may only file a Chapter 7 petition if his or her disposable income is below a certain maximum. Others must file a Chapter 13 petition. Recent bankruptcy court decisions have held that most veterans’ benefits must be included in the means test determination of income. This means that many disabled veterans and military survivors are ultimately unable to make ends meet.
To address this concern, in August 2019 the Honoring American Veterans in Extreme Need (HAVEN) Act went into effect. The Act excludes “any monthly compensation, pension, pay, annuity, or allowance”. These include:
• Permanent Disability Retired Pay and Compensation
• Severance Pay Based on Disability, Including Preexisting Conditions
• Combat-Related Compensation
• Many Survivor Benefits
• Veterans Pension.
A few types of benefits are excluded from the Act and thus must be counted as income under the means test. These include monthly special compensation from the Department of Defense and pay for people on the temporary disability retired list.
As a veteran myself, I’m happy to see this change in the law. This change will help former service members get the financial relief they need to help them move forward.
Filing a Chapter 7 petition can eliminate all but a few types of debts, but you must pass the means test in order to be eligible. If you are a current or retired member of the armed forces and would like to learn more, we hope you’ll come in for a free, no obligation consultation with an experienced bankruptcy attorney. You can make an appointment using our online scheduling system (here) or by calling 303.331.3403.