The Boston Bar Association has endorsed legislation to protect recipients of veterans’ disability benefits who are facing bankruptcy proceedings.
The bill, pending in Congress, is known as the Honoring American Veterans in Extreme Need Act of 2019, or HAVEN Act, and would address an inexplicable loophole in current bankruptcy law that excludes Social Security disability benefits, but not veterans’ disability benefits, from the calculation of disposable income when a debtor files for bankruptcy. Because of this disparate treatment, disability benefits received through the Department of Veterans Affairs (VA) and the Department of Defense (DoD) may be accessible by creditors, unlike similar benefits that happen to be administered through the Social Security Administration. The HAVEN Act would rectify this imbalance by excluding veterans’ disability benefits from that calculation of income.
We have sent a letter from BBA President Jon Albano to the Massachusetts Congressional delegation, asking for their support for the HAVEN Act, in order to ensure equal treatment of disabled veterans in bankruptcy proceedings. As the letter states:
It is unclear why this oversight occurred when significant Bankruptcy Code reforms were last enacted in 2005. Prior to that, bankruptcy courts had discretion when deciding whether to count disability-related income from the VA/DoD as “current monthly income”.
The Bankruptcy Code, as currently written, provides that if a debtor seeks protection under a Chapter 7 liquidation, that debtor must pass a “means test”, such that if the debtor earns too much “monthly income” in comparison with expenses, they cannot proceed via Chapter 7 but must instead use a more-protracted Chapter 13 proceeding, which involves pledging a percentage of future income, usually for three or five years, to pay creditors.
Because of the disparate treatment of disability benefits under the current means test, more disabled veterans will be pushed into Chapter 13, and their future veterans’ disability benefits will be applied to pay creditors. Recipients of Social Security disability payments, however, will not suffer the same consequences.
The proposed amendment would rectify this imbalance by excluding veterans’ disability benefits from that calculation of monthly income.
We thank the BBA’s Bankruptcy Law section and our Active Duty Military & Veterans Forum for their help with this matter and we hope to update you when the HAVEN Act becomes law. In the meantime, if you’d like to add your voice, you can contact Sen. Elizabeth Warren, Sen. Ed Markey, and your member of Congress, to ask for their support.
Government Relations Director
Boston Bar Association