On Aug. 23, 2019, the Honoring American Veterans in Extreme Need Act of 2019 (HAVEN Act) was signed into law. The HAVEN Act amends the Bankruptcy Code to exclude many benefits paid by the U.S. Department of Veterans Affairs (VA) and the U.S. Department of Defense (DoD) to disabled veterans and their families from the calculation of a debtor’s “current monthly income” in the bankruptcy “means test.” As a result, more disabled veterans will now be eligible to file a Chapter 7 Bankruptcy instead of being forced to file Chapter 13 Bankruptcy. Previously, depending upon their income, many disabled veterans were only able to file a Chapter 13 Bankruptcy which requires the debtor to pay back at least some of their debt back through a court-ordered payment plan.
According to the 2018 VA Annual Benefits Report, approximately 25% of the total veteran population received VA disability benefits. That is 4.74 million US veterans. Furthermore, veterans make up a disproportionate share of the U.S. population that files for bankruptcy. While veterans make up only 10% of the US population, they make almost 15% of bankruptcy filers in Chapter 7 and Chapter 13.
What is the Means Test?
The means test of Section 707 of the Bankruptcy Code determines whether a debtor may qualify to file for Chapter 7 Bankruptcy. The test calculates the eligibility of debtors with primarily consumer debts whose income exceeds the median income for their household size in the state in which they live. The test was designed to determine whether a debtor has sufficient income to pay back creditors through a Chapter 13 plan. The median income figures used in the means test are set by the US Trustee Program, a division of the U.S. Department of Justice. For more information about how the Means Test works, please follow this link (https://www.debtlawyer.com/what-is-the-means-test-in-bankruptcy/)
The HAVEN ACT & The Means Test
The HAVEN Act was passed in order to correct the injustice done to service members who were forced to file Chapter 13 Bankruptcy when similarly situated individuals who receive Social Security were allowed to receive a discharge in Chapter 7 Bankruptcy. Prior to the HAVEN Act, only Social Security Retirement, Social Security Disability, and Supplemental Security Income were excluded from the means test. Now there are a wide variety of payments made by the VA and DoD in connection with “a disability, combat-related injury or disability, or death of a member of the uniformed services,” that will not be considered as part of the means test. These benefits include:
- Permanent Disability Retired Pay
- Temporary Disability Retired Pay
- Retired or Disability Severance Pay for Pre-Existing Conditions
- Disability Severance Pay
- Combat Related Special Compensation
- Survivor Benefit Plan for Chapter 61 Retirees
- Special Survivor Indemnity Allowance
- Special Compensation for Assistance with Activities of Daily Living
- VA Veterans Disability Compensation
- VA Dependency and Indemnity Compensation, and
- VA Veterans Pension
However, it should be noted that there are certain benefits that are not included for exclusion by the HAVEN Act, including monthly special compensation from the DoD and retirement pay for service members on the temporary disability list.
Passing The Means Test But Still Showing Disposable Income
Even if a disabled veteran qualifies for Chapter 7 Bankruptcy under the means test due to the changes made by the HAVEN Act, they still could have too much disposable income to file Chapter 7 Bankruptcy. If a debtor’s disposable income, excluding their VA or DoD benefits, over the next 60 months is enough to pay at least 25% of their debts, then they still may be required to file a Chapter 13 Bankruptcy.
Contact The Law Offices of David I. Pankin P.C.
If you are a disabled veteran facing financial difficulty and would like more information on how Bankruptcy can possibly help you, please contact the Law Offices of David I. Pankin, P.C. at 888-529-9600 or by using our easy online contact form. We have represented members of various armed services in the past and look forward to opportunity to help you as well. David I. Pankin is a Brooklyn Brooklyn bankruptcy lawyer helping New York & Long Island consumers since 1996.