Can VA Disability Benefits Be Used as Income in Chapter 7 or 13 Bankruptcy?

Written by James Hirby | Fact checked by The Law Dictionary staff |  

There is a lot of information on this. US Code 38&5301(a) state that VA Disability is not considered income. Bankruptcy Code (BC) 11 USC 522 (d)(10)(b) states that VA Disability is exempt the same way that Social Security Disability benefits are exempt. . But, is it considered to be income?

Essentially, it is income. But, a veteran does not have to pay taxes, nor is it part of income for bankruptcy. It is exempt there. A very interesting, top-search-return is this pdf: [http://www.iurillolaw.com/docs/Keep-in-Mind_that_There_are_Exceptions-for-Veterans-in-the_B.pdf]
This is a lawyer’s presentation for veterans in the situation where one is in or facing bankruptcy.
In this content, it specifies that Section 522(b)(2) of the Bankruptcy Code states that a veteran who is a debtor has the right to receive veterans’ benefit, and that it is exempt in a bankruptcy case. This means that the debtor’s veterans’ benefit will not be part of a debtor’s estate in a bankruptcy that is already in place, or if that veteran decides to file for bankruptcy. [Refer to 11 U.S.C. 522(d)(10)(B)]. However, the state of Florida tries to get around this in section 222.20 of the Florida Statutes. Here, Florida has chosen to not follow these federal exemptions. Regardless, section 222.201 of the Florida Statutes specifies allowed personal property exemptions in Florida, and included in that list are … veteran benefits. [Refer to Fla. Stat. § 222.201.] So, when a veteran files bankruptcy, Florida’s exemption law is applicable. Any veteran benefits that the debtor receives will remain as the debtor’s property and can not be included in the property listed as a part of the bankruptcy estate.

This pdf source has another interesting part of this story. It also says that credit counseling is a strict, mandated requirement under the new bankruptcy laws for every debtor. In fact, Section 109(h)(1) of the Bankruptcy Code states that an individual may not file bankruptcy unless that individual has received credit counseling within 180 days preceding the bankruptcy filing date. [Refer to 11 U.S.C. § 109(h)(1)]. Yes, you read that correctly. A person must be counseled at least 180 days (6 months) before that person is allowed to file. The Bankruptcy Code goes on to strictly limit allowed exceptions to this required credit counseling. , The bankruptcy court may decide that after the notice and hearing occur this credit counseling requirement will not apply to a debtor unable to complete counseling due to “incapacity, disability, or active military duty in a military combat zone.” [Refer to 11 U.S.C. § 109(h)(4).] Note Well: while the Bankruptcy Code does identify participants on active military duty in a combat zone as an exception, it does not list “veterans” as an exception to the required credit counseling.

Last part of this story is that “means testing” can lead to a veteran’s exception, required in a Chapter 7 bankruptcy case. The debtor’s bankruptcy petition must contain a specific completed form: “Statement of Current Monthly Income and Means-Test Calculation.” Referring to Section 707(b)(1) of the Bankruptcy Code, a Chapter 7debtor’s bankruptcy case may be converted, even dismissed, to a Chapter 11 or 13 case if any financial abuse is found during the hearing. The bankruptcy court
Evaluates the debtor’s current monthly income, the “means testing”, and decides if abuse occurred.

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