Friday, August 1, 2014

Are veterans benefits income under the Chapter 7 means test?

If you are a veteran, do your veterans' benefits count as "income" for purposes of qualifying for Chapter 7 bankruptcy relief? Your income affects your eligibility for Chapter 7 bankruptcy -- the higher your income, the more difficult it may be for you to pass the Chapter 7 "means test." Unfortunately, you must count your veterans' benefits as income when filing for Chapter 7 bankruptcy. However, if you are a disabled veteran, you may be exempt from the means test altogether.

Chapter 7 Income Requirements: The Means Test

In order to be eligible for Chapter 7 bankruptcy relief, you must meet certain income and expense requirements. If your monthly income is less than or equal to the median income in your state, you can file for Chapter 7 bankruptcy (assuming you meet other Chapter 7 eligibility requirements.) If your income is higher than the state median, you must pass the Chapter 7 means test, which looks at your disposable income after deducting certain expenses from your income.
The lower your income, the easier it is to qualify for Chapter 7 bankruptcy.

Veterans' Benefits Count As Income

Unfortunately, you must include any veterans’ benefits you receive when calculating your income for Chapter 7 bankruptcy. Veterans' benefits may include payments for healthcare, living expenses, and disability. In fact, for purposes of the means test you must include most types of income, other than Social Security Benefits, and in some states, unemployment compensation.

Exception to Means Test for Disabled Veterans

If you are a disabled veteran, you may not have to take the means test at all in order to qualify for Chapter 7 bankruptcy.

If you are a veteran, you are exempt from the means test if:
  • you are considered “disabled,” as defined by bankruptcy law (see below), and
  • you incurred the debt while on active duty or performing a homeland defense activity.

What Is the Definition of "Disabled"?

To qualify as disabled, a veteran must be either:
  • rated by the Veterans Administration as at least 30% disabled, or
  • discharged as a result of a disability incurred in the line of duty.
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