Bills
| 3.23.22

Should Veterans’ Disability Benefits be Exempt From Calculations of Their Disposable Income? (H.R. 2938)

Do you support or oppose this bill?

What is H.R. 2938?

(Updated October 25, 2019)

This bill was enacted on August 26, 2019

This bill — the HAVEN Act — would amend bankruptcy law to treat Veterans Administration (VA) and Dept. of Defense (DOD) disability benefits in the same way as Social Security disability benefits. This would exempt them from being calculated as part of a debtor’s disposable income and thereby increasing the portion of their income that’s subject to creditors’ reach. 

This bill’s full title is the Honoring American Veterans in Extreme Need Act of 2019.

Argument in favor

It doesn’t make sense to include veterans’ disability benefits in calculations of their disposable income. This is especially true in light of the fact that other types of disability payments, such as Social Security benefits, aren’t subject to inclusion for disposable income calculations.

Argument opposed

Congress changed bankruptcy law to alter criteria for calculating disposable income during bankruptcy proceedings to make sure people who can repay their debts do so, which is why veterans’ disability benefits were included. That provision should remain as is.

Impact

Disabled veterans; disability payments to disabled veterans; disabled veterans in bankruptcy proceedings; and calculations of disabled veteran debtors’ disposable incomes for creditors’ purposes.

Cost of H.R. 2938

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Rep. Lucy McBath (D-GA) introduced this bill to protect veterans and their families who may be experiencing financial hardship and rely on disability benefits: 

“Our disabled veterans earned their benefits by serving our great nation, and we must protect them and their families, especially during financial hardship. This bipartisan legislation would safeguard the disability benefits that our veterans and their families deserve and depend on. I’m proud to support the HAVEN Act – we must do right by our veterans.”

Original cosponsor Rep. Greg Steube (R-FL) added: 

“I’m proud to support the HAVEN Act and ensure that benefits afforded to our disabled veterans are just that—benefits, not burdens. This bill will make sure that disability payments are not counted as income in bankruptcy. We should help veterans who have fallen on tough financial times, not hurt them by taking away the very payments they earned fighting for our freedom.”

Sen. Tammy Baldwin (D-WI), who along with Sen. John Cornyn (R-TX) is sponsoring this bill’s Senate companion, says: 

“Forcing our veterans and their families to dip into their disability-related benefits to pay off bankruptcy creditors dishonors their service and sacrifice. These benefits are earned, and we must do right by our veterans and protect their economic security, especially during challenging times. My bipartisan legislation with Senator Cornyn will safeguard the disability benefits our veterans and their families depend on and provide the financial security that those who have served our nation deserve.”

In general, this bill’s supporters argue it’s unfair that veterans may be forced to give up their disability benefits when declaring bankruptcy when the general population receiving similar benefits through Social Security doesn’t face this prospect. The Association of the United States Army is among a range of military groups supporting this bill. In a press release, its director of government affairs, Mark Haaland, said: 

“The Association of the United States Army is proud and honored to support this important bipartisan legislation, the Honoring American Veterans in Extreme Need Act. Passage of this legislation will help protect America’s disabled veterans who are so deserving of this nation’s gratitude and support. We thank Senator Tammy Baldwin and Senator John Cornyn for introducing the HAVEN legislation, and we thank the many United States senators who have announced their support and endorse this bill.”

Sen. Baldwin adds that reducing the barriers for veterans to file for bankruptcy creates more opportunities for them to turn their lives around and resume their contributions to the economy: 

“When somebody has financial woes that are so significant that they have to declare bankruptcy, if given a second chance they have a much more promising path to becoming taxpayers again. If not given that chance, people are not necessarily going to resume a productive job. We like to create new taxpayers.”

There are 37 bipartisan House cosponsors of this bill, including 34 Democrats and three Republicans. Its Senate companion, sponsored by Sen. Tammy Baldwin (D-WI), has 41 bipartisan Senate cosponsors, including 21 Republicans, 19 Democrats, and one Independent.

This bill is endorsed by a wide array of stakeholder groups, including the American Bankruptcy Institute, American College of Bankruptcy, The American Legion, Veterans of Foreign Wars, Disabled American Veterans, Paralyzed Veterans of America, Iraq and Afghanistan Veterans of America, Wounded Warrior Project, Association of the United States Army, Association of the United States Navy, Retired Enlisted Association, Society of Military Widows, Veterans for Common Sense, the U.S Army Warrant Officers Association, the Association of the U.S. Army, Boston Bar Association and Bradley.


Of Note: Current law allows disability payments to veterans from the VA and DoD to be considered as part of their disposable income. This makes such payments subject to creditors when veterans declare bankruptcy. By contrast, Social Security disability benefits are exempted by law from being included in a person’s disposable income in bankruptcy filings. Additionally, disability benefits in all forms aren’t taxable and are generally not considered disposable income. The law firm Bradley notes that this “disparate treatment of veterans’ disability benefits limits financially distressed disabled veterans’ access to bankruptcy relief and makes it more difficult for them to obtain a financial fresh start.”

Jay Bender, a partner in Bradley’s Bankruptcy and Restructuring Practice Group and a co-chair of the American Bankruptcy Institute’s Task Force on Veterans and Service Members Affairs, adds: 

“We need to make sure that our disabled veterans, who have given so much for our country, are treated fairly under our bankruptcy laws and can obtain the relief they need when they fall on hard times. While no one wants to file for bankruptcy, bankruptcy offers those in need an opportunity to get a fresh start, and no one is more deserving of a fresh start than a disabled vet in financial distress. We owe it to them and their loved ones to make sure they have fair access to the bankruptcy courts if and when needed.”

In 2005, Congress changed the bankruptcy code to force those with incomes at or above the median in their geographic areas into Chapter 13 (reorganization) rather than Chapter 7 (liquidation). At the time, the thinking was that debtor who could pay part of their debts in Chapter 13 were receiving fast discharges in Chapter 7 instead. However, while abusive Chapter 7 filings did exist before, the amendments have created unintended consequences, particularly for disabled veterans because they made veterans’ military disability benefits part of their monthly income calculations. 

Thus, under current law, many financially distressed veterans are pushed into Chapter 13 proceedings over Chapter 7 proceedings; and they’re also forced to commit their benefits toward repaying creditors. John Thompson, a D.C. partner at the law firm McGuireWoods and chair of the firm’s Veteran Lawyers Network, observes: 

“Though it is surely unintentional, the law currently discriminates against those who’ve served their country in the military and become disabled as a consequence of that service. Consider that a person disabled in a car wreck can protect Social Security disability benefits in bankruptcy proceedings, but a combat veteran disabled by an improvised explosive device in Iraq can’t.”


Media:

Summary by Lorelei Yang

(Photo Credit: iStockphoto.com / Pekic)