Veterans' Benefits and Bankruptcy

NOTE: This post was updated on September 17, 2019 to include changes made by the HAVEN Act.

Which of these statements about veterans’ benefits are true?

1. Veterans’ benefits are 100% exempt in bankruptcy.

2. Veterans’ benefits can be seized by creditors or the Trustee in bankruptcy.

3. You can lose your VA benefits if you file for bankruptcy.

4. Veterans’ benefits don’t even need to be listed in your bankruptcy case.

5. Veterans’ benefits are classified as “income” that can be used to pay creditors in a Chapter 13 case.

Three of the statements (#2, #3 and #4) are totally false.  Statement #1 is true.  Statement #5 is partially true, depending on the exact nature of the benefit.  If you're confused, read on. 

THE RIGHT TO RECEIVE VETERANS’ BENEFITS ARE PROTECTED.  Section 522(d) of the Bankruptcy Code lists the property that a debtor can exempt from creditors under federal law, and includes a debtor’s “right to receive . . . a veteran’s benefit[.]”  Similar state exemption laws (such as Section 44-13-100(a)(2)(B) of the Georgia Code) apply in the states that have “opted out” of federal bankruptcy exemptions.  This means that the right to receive veterans’ benefits is absolutely protected in a bankruptcy case.  Outside of the bankruptcy context, the payment of benefits due or to become due are also exempt: They are protected from assignment, taxation, and the claims of creditors. See 38 U.S.C. § 5301.

YOUR VETERANS BENEFITS CANNOT BE “SEIZED” IN BANKRUPTCY.   Read out of context, this article suggests such a thing might be possible.  The article is referring to the fact that veterans’ benefits are counted as income in a Chapter 13 case.  Chapter 13 is a voluntary repayment plan, so no “seizing” of property is involved.  Some veterans may need to contribute part of their benefits to a Chapter 13 plan payment as part of their “disposable income.”  This is less likely now that the HAVEN Act has been enacted, as discussed below.  Contribution of future income plays no part in a Chapter 7 liquidation case, so your veterans’ benefits are not at risk there.

YOU WON’T LOSE YOUR BENEFITS IF YOU FILE BANKRUPTCY.  The same article linked above suggests that veterans can “lose” their benefits, which is not accurate.  As explained above, the Bankruptcy Code expressly protects the right to receive veterans’ benefits.

YOU MUST DISCLOSE VETERANS BENEFITS IN YOUR BANKRUPTCY CASE.  As discussed in a recent post, a person seeking relief under the Bankruptcy Code needs to provide complete, accurate and truthful information.  This means you must disclose all of your property and your sources of income.  How those items are treated in the bankruptcy case is a complicated question, but withholding information in a bankruptcy case (filed under the penalty of perjury) is not an option!  

SOME VETERANS BENEFITS, SUCH AS RETIREMENT PAY, MAY BE INCLUDED AS “DISPOSABLE INCOME” IN CHAPTER 13, BUT NOT DISABILITY PAY. While the Bankruptcy Code protects the right to receive veterans’ benefits, they are also treated as income.  The definition of “current monthly income” in Section 101(10A) of the Bankruptcy Code is very broad.  It includes income “from all sources,” “without regard to whether such income is taxable income[.]”  And the exceptions are extremely limited.  Prior to August 2019, the only exceptions were benefits received under the Social Security Act, and certain payments to victims of war crimes or terrorism.  Veterans’ benefits did not fall under the Social Security Act.  Two bankruptcy courts have examined this section and concluded that veterans’ benefits do count as income. See In re Brah, 562 B.R. 922 (Bankr. E. D. Wisc. 2017), In re Waters, 384 B.R. 432 (Bankr. N.D.W.V. 2008).


In August 2019, the "HAVEN Act" ("Honoring American Veterans in Extreme Need") became law.  The HAVEN Act amended the Bankruptcy Code to exclude VA disability payments from disposable income.  The specific language in the HAVEN Act applies to:

monthly compensation, pension, pay, annuity, or allowance paid under title 10, 37, or 38 in connection with a disability, combat-related injury or disability, or death of a member of the uniformed services, except that any retired pay excluded under this subclause shall include retired pay paid under chapter 61 of title 10 only to the extent that such retired pay exceeds the amount of retired pay to which the debtor would otherwise be entitled if retired under any provision of title 10 other than chapter 61 of that title.

Certain types of VA benefits may still be included as disposable income.  The language in the HAVEN Act applies to VA disability pay, including disability compensation, retired pay and severance pay; combat-related special compensation; concurrent retirement and disability payment; and survivor benefit plan annuities and indemnity allowances, among others.  The "only to the extent" language at the end of the paragraph means that only the difference between the disability pay and the amount a veteran would have received in retirement pay is exempted under the HAVEN Act, not the entire amount.  Deciding whether or not a veteran's benefit is excluded from disposable income can be a complicated and technical analysis.  Your VA award letter, pay stubs and service records will be very helpful to any attorney who is assisting you in this evaluation. 

The7thirteen is a blog written by Jeff Narmore, focusing on consumer bankruptcy issues.  Visit my website at narmorelawoffice.com.

Narmore Law Office LLC is a debt relief agency that helps people file for relief under the Bankruptcy Code.