VA Disability No Longer Income Under Bankruptcy Means Test

By James Roswold | October 22, 2021

A new law passed in 2019 brought good news for veterans and their families in regard to filing bankruptcy. When individuals and couples file for bankruptcy, they are required to insert their household income into a formula called the “means test.” In the past, monthly income that veterans and their families received from the Department of Veterans Affairs (VA) or the Department of Defense had to be included in the means test, but the new law put a stop to that.  

Protecting Veteran Benefits

A new federal law called the Honoring American Veterans in Extreme Need Act of 2019 (the HAVEN Act or House Resolution 2938) made changes to bankruptcy law to increase protections for veterans seeking to file bankruptcy. The HAVEN Act states that benefits paid to veterans by the VA and Department of Defense are now exempt from the disposable income calculation. Not only are these benefits exempted from the means test, but they are also protected from creditors attempting to collect on debts.

The bill garnered endorsements from a variety of advocacy organizations for veterans and was passed with strong bipartisan support. Specifically, the new law exempts “any monthly compensation, pension, pay, annuity, or allowance paid under title 10, 37, or 38 in connection with a disability, combat-related injury or disability, or death of a member of the uniformed services.” Here is a list of protected veterans benefits:

  • 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
  • How Does the Law Make a Difference?

The HAVEN Act essentially makes it easier for veterans and their families to get the financial relief that they need by lowering their income threshold when filing bankruptcy. The means test is structured to ascertain whether or not individuals and couples qualify to file a Chapter 7 bankruptcy. When you take veteran benefits out of the equation, the result is a lower disposable income. 

In Chapter 13, disposable income is a determining factor in how much your monthly plan payment will be. It will also dictate how long you will be repaying your debts. 

If you thought about filing bankruptcy back when your veteran benefits were included in the means test but decided against it, now might be the time to reconsider your decision. Consult with a bankruptcy attorney today to discuss your financial situation and how the HAVEN Act might help you get a fresh financial start. 

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