The HAVEN Act and Veterans Benefits in Bankruptcy

For veterans in Florida who need bankruptcy protection and are considering filing for Chapter 7 bankruptcy, the prospect of passing the “means test” can be complicated and, in some cases quite difficult, given the way in which current bankruptcy law requires courts to consider certain veterans’ benefits as part of a veteran’s income. In other words, if a veteran currently receives federal benefits, she or he must count those benefits as income in determining eligibility for Chapter 7 bankruptcy.

For many veterans, including benefits as income for purposes of determining Chapter 7 eligibility through the “means test” result in a lack of eligibility for Chapter 7 bankruptcy. In some cases, veterans who are ineligible to file for Chapter 7 bankruptcy because of the means test will end up filing for Chapter 13 bankruptcy, but many others simply continue to struggle with debt. The Honoring American Veterans in Extreme Need (HAVEN) Act was designed to make it easier for veterans receiving benefits to file for liquidation bankruptcy, but the proposed amendment failed, according to a press release from the American Bankruptcy Institute (ABI).

We will say more about the difficulties veterans face in filing for Chapter 7 bankruptcy and passing the “means test,” and then we will say more about how the HAVEN Act—or a similar piece of proposed legislation—could help veterans in Tampa and throughout the country who are struggling with debt.

Difficulties for Veterans Who Want to File for Bankruptcy

In order to be eligible to file for Chapter 7 bankruptcy, an individual has to pass what is known as the “means test.” The “means test” was designed to prevent individuals from filing for liquidation bankruptcy under the U.S. Bankruptcy Code without really needing to do so. The “means test” is designed to ensure that the individual (or couple) filing for bankruptcy truly does not have the assets to repay creditors and does not have a significant enough income to make payments through a Chapter 13 bankruptcy repayment plan. The more disposable income an individual has, the less likely she or he is to qualify for Chapter 7 bankruptcy.

How does the “means test” affect veterans who want to file for Chapter 7 bankruptcy? In short, veteran’s benefits are included as part of a veteran’s “disposable income” for purposes of determining bankruptcy eligibility through the “means test.” As such, many veterans do not qualify for Chapter 7 bankruptcy because of their benefits. Prior to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), this was not always the case. Judges could use discretion in determining whether veteran’s benefits should be classified as “disposable income.” After the BAPCPA, however, veterans’ benefits—unlike Social Security benefits and other types of federal benefits—must be counted.

Correcting Harms to Veterans through the HAVEN Act

In an attempt to remedy the harm to veterans resulting from the BAPCPA’s classification of veteran’s benefits as disposable income, lawmakers proposed the HAVEN Act. With involvement from veterans organizations, lawmakers drafted this legislation, which sought to amend the U.S. Bankruptcy Code’s definition of “current monthly income.” Under the terms of the legislation, an individual’s “current monthly income” for purposes of the means test would exclude veterans’ disability benefits and numerous other veterans’ benefits.

Senator Tammy Baldwin proposed the HAVEN Act and sought to have it passed as an amendment to the John S. McCain National Defense Authorization Act for Fiscal Year 2019. The legislation would have resulted in more veterans being able to pass the means test and to qualify for Chapter 7 bankruptcy. While the legislation failed to pass, the ABI and other supporters of veteran’s rights emphasize that it may be possible to pass a similar law in the near future.

Contact a Tampa Bankruptcy Lawyer

If you have questions about filing for Chapter 7 bankruptcy and currently receive federal benefits, an experienced Tampa bankruptcy attorney can assist you. Contact Samantha L. Dammer for more information.

Resources:

abi.org/newsroom/press-releases/exempting-veterans-benefits-in-bankruptcy-will-end-disparate-treatment-of

congress.gov/bill/115th-congress/house-bill/5515/text