Many Michigan veterans with disabilities connected to their service fall below the poverty line. Veterans who face dire financial circumstances may file for chapter 13 bankruptcy for relief from certain debts.

Until 2020, veterans had to give up some of their veterans’ benefits to creditors after filing for bankruptcy, yet people with Social Security benefits did not have to do the same with their benefits. The 2019 Honoring American Veterans in Extreme Need Act changed how bankruptcy courts treat certain veterans’ benefits.

Chapter 13 requires repayment from future income

Under chapter 13 bankruptcy, debtors partially repay creditors from future income. Repayment plans designate disposable income for payment to unsecured creditors during the bankruptcy period, which may last three to five years. Some types of income do not count as “disposable income,” including Social Security benefits.

Certain veterans’ benefits no longer count as disposable income

Under the HAVEN Act, veterans no longer have to surrender their veterans’ disability benefits to creditors under chapter 13 bankruptcy. Nor do they have to surrender compensation for combat-related injuries.

The HAVEN Act may help more veterans qualify for chapter 7 bankruptcy

Chapter 7 bankruptcy usually allows debtors to discharge debt more quickly, but not everyone qualifies to file under chapter 7. The debtor’s current monthly income cannot exceed certain thresholds to qualify for chapter 7. Under the HAVEN act, veterans’ benefits no longer count as “monthly income,” potentially helping more veterans qualify for chapter 7 bankruptcy.

Conclusion

Veterans who previously worried about onerous payment plans under chapter 13 bankruptcy may now find those terms more favorable if they receive veterans’ disability or combat-related injury benefits due to the HAVEN Act.