Is VA Disability Included in Chapter 13 or Chapter 7 Bankruptcy?
The Department of Veteran Affairs (VA) provides a variety of benefits to those who have served in the armed forces. The most common benefits provided by the Veteran Administration are monies for those with a disability or as a pension for veteran retirees.
Unfortunately, even though you may be due honor for the sacrifices you made for your country as a veteran you can still be subject to the difficulties of day-to-day living, such as finding yourself in a debt situation that you cannot afford to pay. If creditors do come calling, what does this mean for your VA benefits? Of if you are considering declaring bankruptcy, how will the bankruptcy affect you and your VA benefits? Read on to learn more about these topics.
VA Benefits and Creditors
If you owe money to a creditor such as a credit card company, one of the powers creditors may use to seek repayment is garnishment of your bank account or other funds. Garnishment is a court order to the bank requiring that the bank hold your money for payment to the creditor.
Whether your VA benefits are subject to garnishment depends on both the type of benefit you are receiving and the reason for the garnishment. If the garnishment stems from a general creditor such as a credit card company, usually all of your VA benefits are protected from garnishment. But if the garnishment relates to unpaid child support or alimony, the garnishment may apply to your VA benefits with one exception. Usually VA benefits related to disability are not subject to garnishment, even if the garnishment stems from unpaid child support or alimony.
VA Benefits and Bankruptcy
The treatment of VA benefits in bankruptcy is also dependent on your individual situation. First, if you are considering declaring Chapter 7 bankruptcy, you must pass the means test. The means test is used to determine if you have sufficient income such that you should be disqualified from using Chapter 7 bankruptcy to liquidate your debt, instead possibly using Chapter 13 bankruptcy to simply reorganize your debt.
In general, if you are a disabled veteran, you are exempt from the means test altogether. Otherwise, your VA benefits are used in the means test to determine if you qualify for Chapter 7 bankruptcy.
Whether you pass the means test or not, your VA benefits are not included in your bankruptcy estate, even though your VA benefits are used to determine if you can qualify for Chapter 7 bankruptcy. This means that under either a Chapter 7 or Chapter 13 bankruptcy, your VA benefits will not be used to satisfy the debts of your creditors.
To help ensure your VA benefits are not accidentally included in a garnishment request, possibly requiring that you provide documentation to prove the source of the funds, it is usually a good idea to keep money you receive from VA benefits separate from other income or money you receive.