Bankruptcy is not a great to place to be in no matter who you are. A common question from Veterans of the Armed Forces however, is if they will lose their benefits if they file for bankruptcy. The short, easy answer to this is no, but there is more to it than just a simple answer, and this will explain.
Do you ever wonder how bad rumors get started? Bad headlines don’t help.
Congress is considering the Honoring American Veterans in Extreme Need (HAVEN) Act. Part of the HAVEN Act will correct an injustice suffered by many U.S. vets who receive service-related disability income. In bankruptcy law, if you receive disability from Social Security, it is not “counted” in the Means Test. But if the disability check comes from the military, then it does count. Even though veteran benefits have all the same protections as Social Security otherwise. That’s not fair. The HAVEN Act, among other things, intends to correct that injustice. So it’s entirely for the good of veterans.
But sometimes news outlets write headlines that terrify people in order to grab your attention. (No, shocking, right?!)
For example, the influential online magazine Military Times has a related site called RebootCamp focused on veterans’ needs. In this case, RebootCamp went with “Bankrupt vets can lose their disability benefits. This new effort would help them” as the headline to a Joshua Axelrod piece on the HAVEN Act on March 7, 2019.
Unfortunately, the article describes the bankruptcy system as “seizing” the disability benefits of vets who file bankruptcy repeatedly. In fact, the current law says that those disability benefits count as income in the means test so that, if your income is high enough overall, you might be forced to file Chapter 13 and not Chapter 7. And you may be required to pay some of your debt back that you would otherwise discharge in Chapter 7. That is unfair and should not happen. But the veteran’s disability is not “seized” by the bankruptcy system so much as counted to determine what you can afford to repay during a (up to) 5-year repayment plan. Those benefits are never taken away from you in the literal sense. The checks continue to come to the veteran. If you qualify for Chapter 7, the trustee cannot take them. The Chapter 13 trustee doesn’t really take them away from you either. And, once either case completes, you still have those benefits you qualify for.
A subtle but really important distinction.
This is not a new experience for bankruptcy lawyers (or, really, any lawyers). We always cringe when we talk to reporters. Because we know that the resulting article will almost always get something wrong. We hope it’s something that doesn’t really matter – like the spelling of our name. But it’s usually some well-meant but misleading spin on the law that, with the force of a wildfire, will grow into common knowledge. It will inevitably confuse and even terrify people who are looking for help.
For example in this case, with the HAVEN Act in the news, bankruptcy attorneys are getting more calls from vets who say they can’t file because they’ll lose their benefits — all the nuance in the original story is gone. And those are the vets who actually call so the issue can be explained to them. I have no doubt that there are many, many more vets out there who now “know” that bankruptcy costs them their veterans’ benefits and will never call us for help. And they’ll warn their comrades who will warn theirs…and so on.
And with bankruptcy law, this is a particularly bad problem. The law is very technical. Change any small fact and the entire outcome can change. And people who have to seek bankruptcy help are usually embarrassed even when they have done nothing at all to be ashamed about. So they tell no one. It makes it terribly hard to market a bankruptcy practice by word-of-mouth if no one ever admits they came to you office! And it also means no one will say to their vet friend, “That doesn’t sound right, I know a bankruptcy lawyer, why don’t you call him instead of listening to the Internet?”
But you should.