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Veterans Disability Benefits and Bankruptcy

If you currently receive Social Security Disability benefits and file a Chapter 7 bankruptcy, your Disability income is not counted as personal income under the Bankruptcy Code’s means test.  Since that income is not counted, you are generally more likely to be able to stay in Chapter 7 and receive a complete discharge of your debts.

On the other hand, Veterans Disability benefits are counted as income under the means test, with very narrow exceptions.  This means that those who served and became disabled as a result of their service are less likely to be able to have their debts discharged in Chapter 7 and will be forced into a Chapter 13 plan.

However, service members and their families often have to bear a higher cost of supporting themselves, which includes the cost of deployment, the cost of up-armoring, and the cost of existing at the lower end of the economic ladder.  A debtor who can rehabilitate him or herself and can return to life with a disposable income helps the economy grow. If you are locked into a Chapter 13 plan, which requires that 100% of your income goes to creditors, then there is increased likelihood that consumer distress will continue.