Veterans and Bankruptcy: 5 Things You Need to Know

We owe our veterans a debt that we cannot repay. The choice to serve in the United States Armed Forces is brave. Here at Ascend, we thank you for your service.
Information in this article does not constitute legal advice, it is for informational purposes only, and may not constitute the most up-to-date information. Readers should contact their attorney for advice on any particular legal matter.

We also understand that veterans may face financial hardships like the rest of us. Unfortunately, an unexpected event can cause a financial crisis that you cannot recover from without the help of the bankruptcy system. The good news is that filing bankruptcy as a veteran does have some benefits that other individuals do not have when they file a Chapter 7 Bankruptcy.

Keep reading to discover five things that every veteran should know about filing for bankruptcy relief, or jump ahead to the section that interests you most.

Table of Contents

Are Disabled Veterans Exempt from the Bankruptcy Means Test?

The Chapter 7 Means Test determines whether you meet the income qualifications to obtain a bankruptcy discharge under Chapter 7.

A bankruptcy discharge eliminates your legal obligation to repay a debt. In other words, creditors cannot take any action to collect a debt discharged through bankruptcy.

Ascend has a free Chapter 7 bankruptcy calculator (which you can also find below) that you can use to estimate whether you qualify for Chapter 7 and the estimated all-in cost of bankruptcy.

That said, disabled veterans may not be required to pass the Chapter 7 Means Test to discharge debts. 

There are three situations in which an individual can avoid taking and passing the Chapter 7 Means Test and still be eligible for a Chapter 7 bankruptcy discharge:

Disabled Veterans

You incurred most of your debts while on active duty or performing a homeland defense activity.

Active or Former member of the National Guard or Reservist

You were called to active duty or performed a homeland defense activity for at least 90 days. If so, you are excused from the Means Test for those 90 days and 540 days after that. 

However, if the time for objecting to qualification for a bankruptcy discharge under the Means Test has not expired, you might be required to submit and pass the Means Test to obtain a discharge under Chapter 7. 

Business Debts

If you file under Chapter 7 and your debts are primarily non-consumer debts, you are exempt from taking the Means Test. “Primarily” generally means more than 50 percent of a person’s debts.

Non-consumer debts are generally debts incurred in the ordinary course of business. Self-employed veterans must be careful. If they used the services or goods purchased for their business for personal use, they should consult a bankruptcy lawyer before assuming they are exempt from the Means Test.

If you believe that you are exempt from the Chapter 7 Means Test, you must file Bankruptcy Form 122A-1Supp. However, it is wise to consult a bankruptcy lawyer to confirm that you qualify for the exemption before filing a Chapter 7 bankruptcy case. 

How Does the Haven Act Help Veterans in Bankruptcy?

The Haven Act (“Honoring American Veterans in Extreme Need”) was signed into law on August 23, 2019. The Act provides additional protections for disabled military veterans in bankruptcy proceedings. It excludes military disability benefits from the Means Test and calculations of disposable income in the same way that Social Security disability benefits are protected in bankruptcy proceedings.

The Act excludes benefits paid to disabled veterans and their families from the Means Test. 

Benefits protected under the Haven Act include, but might not be limited to:

  • Disability severance pay from the Department of Defense under 10 U.S.C. §1212
  • Disability-related military retired pay from the Department of Defense under 10 U.S.C. §§1201 and 1202 and §§1204 and1205, but only to the extent they exceed the amount of military retirement the disabled veteran would have received had they retired without a disability
  • Death and disability payments from the Veterans Administration under Title 38
  • Combat-related special compensation from the Department of Defense under 10 U.S.C. §1413a
  • Payment to a survivor of a service member from the Department of Defense under 10 U.S.C. §§1431 to 1456

The U.S. Department of Justice answers frequently asked questions about the Haven Act

Some Income Veterans Receive May Be Included in the Chapter 7 Means Test

While disabled veterans may exempt specific forms of income from the Chapter 7 Means Test, some types of income must be included in the Chapter 7 Means Test. If you are an active member of the military service, your income is included in the Means Test. 

Furthermore, some benefits paid to current service members are included in the Means Test, such as retirement pay for individuals on the temporary disability retired list. Additionally, monthly special compensation from the Department of Defense is included in the Means Test. 

Does the Veterans Administration Provide Bankruptcy Assistance?

Veterans and armed forces members may seek legal advice through the U.S. Armed Forces Legal Assistance program. The Department of Veterans Affairs also lists several resources for veterans seeking legal assistance.

However, active service members, veterans, and disabled veterans can receive free bankruptcy advice by scheduling a free consultation with a Chapter 7 bankruptcy lawyer. 

You Can Still Qualify for a VA Loan After Filing for Bankruptcy Relief

Many veterans worry about purchasing a home after filing for bankruptcy. They worry that they cannot qualify for a VA mortgage with a bankruptcy on their record. Don’t worry. The VA busted that myth and other myths that hurt Veteran homebuyers.

In most cases, veterans can qualify for a VA home loan two years after receiving a Chapter 7 bankruptcy discharge. The veteran must meet all other requirements to obtain the VA mortgage. 

Contact Ascend for More Information About Veterans and Bankruptcy

As a veteran considering filing Chapter 7 or Chapter 13, having experienced bankruptcy advice is the best way to protect your income and assets. Ascend can help you locate a bankruptcy lawyer near you to discuss filing for bankruptcy relief. Most bankruptcy attorneys offer free bankruptcy consultations, so seeking advice does not cost you anything. You can call or text us at (310) 307-5134.

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