Congress to Vote on More Bankruptcy Relief for Veterans
Several United States senators including Marco Rubio, Tammy Baldwin, and John Cornyn have put their support behind the Honoring American Veterans in Extreme Need (HAVEN) Act. Since 2005, bankruptcy law in the United States has become less consumer friendly and the HAVEN act would make the bankruptcy process easier on veterans by excluding certain benefits from the calculation of the filers income.
To understand how the HAVEN Act helps veterans we have to look at what exactly changed in the bankruptcy law in 2005. In 2005 President George W. Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). One of the most significant changes to the bankruptcy code from the BAPCPA is what is known as the means test.
What is the Means Test
The means test is quite complicated and you need experienced bankruptcy attorney to walk you through the process but the concept is fairly simple. If your “current monthly income” falls below the median income for your state and family size, then generally you are eligible to file for a Chapter 7 liquidation.
In a Chapter 7 liquidation, you can discharge all of your debts with few exceptions. The most notable type of debt that is discharged is unsecured creditors and most of the time for the general public those unsecured creditors are credit card companies. Since credit card companies usually have the most to lose when a consumer files Chapter 7, the means test helps them the most.
If a debtor who is filing for Chapter 7 calculates their “current monthly income” and it is higher than the median income for their state, then the debtor will have to apply applicable deductions and calculate how much money is left. If the debtor has at least $182.50 leftover after deductions or if the debtor has $109.59 remaining and that amount is enough to pay unsecured creditors more than 25% over five years, then the debtor is presumed to be abusing Chapter 7 and they will essentially be forced to file Chapter 13 if they are looking for debt relief.
The deductions available to reduce “current monthly income” include things such as:
· Living expenses
· Health insurance for debtor and family members
· Expenses up to $1,500 per child per year for schooling through high school
· Cost of home energy
A Chapter 13 filing is often less desirable than a Chapter 7 because it requires the debtor to pay back a portion of his or her debts overtime, including to unsecured creditors like credit card companies.
How Does the HAVEN Act Help Veterans?
There are certain types of income that are explicitly excluded from a calculation of “current monthly income,” such as social security benefits. What the HAVEN act would do is exclude certain veteran benefits from the calculation of “current monthly income.” The excluded benefits for veterans would include any monthly compensation, pension, pay, annuity, or allowance connected to:
· Retirement pay;
· Disability benefits;
· Combat related injury benefits; or
· Death benefits to the family of a fallen service member
A quarter of the senate has already stated an intention to support the bill. Allowing veterans to exclude their disability benefits from their calculation of monthly income would make filing for Chapter 7 much easier and would allow veterans that have fallen on hard times to obtain full debt relief.
It is still necessary to involve a bankruptcy attorney when filing. A bankruptcy attorney can walk you through your options and help you understand what the future will look like for you.