Daily News: November 12, 2018

ABI: Exempting Veterans’ Benefits in Bankruptcy Will End Disparate Treatment of Financially Struggling Vets Under the Code


Disparate treatment of veterans’ benefits in bankruptcy presents significant hardship to some veterans, and corrections to the Bankruptcy Code should be made immediately, according to a November ABI Journal article. “While the Code excludes benefits received by individuals under the Social Security Act from the definition of ‘current monthly income’ and thus from an individual’s ‘disposable income,’ the Code inexplicably provides no comparable exclusions for benefits received through the U.S. Department of Veterans Affairs or otherwise on account of a veteran’s service,” write Jay Bender of Bradley Arant Boult Cummings LLP, Elizabeth L. Gunn of the Office of the Virginia Attorney General and John H. Thompson of McGuireWoods LLP in their article “Defending Our Veterans: Excluding Veterans’ Benefits from Monthly Income.” The authors are members of ABI’s Task Force on Veterans and Servicemembers Affairs.

“For years, there was little (if any) debate about whether veterans’ benefits paid through the Department of Veterans Affairs should be included in the debtor’s ‘disposable income,’” the authors write. Prior to 2005, the Bankruptcy Code allowed bankruptcy judges to exercise their discretion, based on the facts of each case, in determining what constituted a debtor’s disposable income.

Bender, Gunn and Thompson said that changed with the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). “Through BAPCPA, Congress divested bankruptcy judges of the discretion that previously had to decide what would – and would not – constitute ‘disposable income’ in a debtor’s case,” they write. The Code was revised by Congress to make “current monthly income,” rather than “disposable income,” the starting point for calculating a debtor’s disposable income under BAPCPA. The authors said that three sources of income were specifically excluded from the “currently monthly income” provision: Social Security Act benefits, payments to victims of war crimes or crimes against humanity, and payments to victims of terrorism. “For reasons that are not clear, veterans’ benefits provided through the Department of Veterans Affairs were not excluded from the Bankruptcy Code’s ‘current monthly income’ definition,” according to the authors.

Bender, Gunn and Thompson write that the issue has wider implications, extending to the threshold question of the chapters of the Bankruptcy Code under which a veteran can seek relief under the provisions of BAPCPA. “Under [the means] test, the greater a debtor’s current monthly income, the greater the likelihood that the debtor’s chapter 7 filing will be presumed abusive,” the authors write. “Including veterans’ benefits in a veteran’s current monthly income calculation might decrease the availability of chapter 7 relief to veterans.”

“There is no sensible basis for the Bankruptcy Code treating benefits paid to veterans through the Department of Veterans Affairs differently than benefits received by individuals from the Social Security Administration,” the authors write. A legislative effort was made this year with the introduction of the Honoring American Veterans in Extreme Need Act (HAVEN Act) to amend the Bankruptcy Code’s definition of “current monthly income” to specifically exclude from that definition veterans’ disability benefits and a wide range of other veterans’ benefits. However, the attempt to tie the bill as an amendment to the John S. McCain National Defense Authorization Act for Fiscal Year 2019 failed.

“Correcting the Bankruptcy Code’s unfair treatment of veterans’ benefits is overdue, and the ABI Task Force for Veterans and Servicemembers Affairs is optimistic that the HAVEN Act will soon be passed with the bipartisan support that it deserves,” the authors write. “Meanwhile, the ABI Task Force will continue to look for additional ways to improve the bankruptcy process to better meet the needs of financially distressed veterans and servicemembers.