Disabled Veterans Benefit from Bankruptcy Reform

Big News for Disabled Veterans in Bankruptcy. However, first a little background.

In 2005 when biggest bankruptcy reform act in history took place, Congress and our President specifically excluded Social Security Income from the Chapter 7 qualification test also known as the Bankruptcy Means Test. We all drew a deep breath and exhaled a massive collective national sigh of relief that older Americans on fixed incomes and folks on permanent Federal Disability income were given additional protections from creditors. Who didn’t see this as an excellent new thing in the law? 

But what didn’t they do? VA Disability or Veterans Administration Disability was not excluded from the Bankruptcy Means Test. What kind of poop was that? Stupid stupid stupid. That was 2005. It took Congress fourteen (14) years to get around to fixing this with the HAVEN Act when the President signed it into law on August 23rd, 2019. 

Okay, the Veterans Administration Code does state that no creditor can ever garnish, levy, attach or receive your VA Disability Benefits. So the problem was that in a Chapter 7 Bankruptcy, the disabled veteran’s disability income would sometimes make them not qualify for a Chapter 7 Bankruptcy but then they wouldn’t be forced into Chapter 13 Bankruptcy which is the kind of Bankruptcy that comes with a Bankruptcy Payment Plan because that would be absurd based on what the VA Benefits Code already says. 

However, in Chapter 13, if a disabled veteran had filed a Chapter 13 to begin with, then there have been a few trial courts who have ruled that by merely filing a Chapter 13 Bankruptcy which automatically comes with a monthly payment plan usually for five (5) years, then that disabled veteran has automatically “decided” to put his VA Disability Benefits into the mix and must use those VA Disability Benefits to pay his creditors through her monthly payment plan. Nothing could be stupider, nothing could have been a more misguided ruling by the court, but they did it. It took Congress to overrule those cases, and the President just signed it. 

However, the HAVEN Act has a specific flaw built into it: Basically, the Chapter 7 Means Test or Chapter 7 Qualification Test and the Chapter 13 Current Income Calculation exclude Social Security from your monthly income or in other words, you don’t have to use your social security to repay your creditors, and VA Benefits and VA Disability Benefits are also excluded by the following language: “any 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,”

Did you see the comma? 

Here’s the mistake, as I see it, in the way the law is written. It’s the sentence that comes next after that comma: “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.”

Just for fun, here is 10 USC chapter 61. So, if your retired pay is under Chapter 61, your retired pay is excluded from Bankruptcy, unless you get more under Chapter 61 than you would have gotten under any other Chapter of the VA Code, but the only part that is included in Bankruptcy is the amount that is over what you would have gotten under such other chapter of the VA Code. 

Typically if you’re medically retired, then you must at least be 30% disabled or more, and then the VA gives you that percentage of your retirement that you would have gotten if you weren’t medically retired. So if you’re 50% disabled and they give you $2000 per month in medical retirement, then that means that if you could have retired at the usual time and age for retirement then the amount you would have gotten would have been $4000 per month. So, it sounds like it would be hard to ever get more than you would have gotten under Chapter 61. So, I’m confused why this is in here.

My final two cents is this, no matter what the Bankruptcy Means Test says and no matter what the Chapter 13 calculation of income says, 38 USC 5301 still states that creditors cannot take your VA Disability Money ever, and that for me is the bottom line.

Even if you fail the Means Test, you still get a Chapter 7 or Chapter 13 Discharge without ever having to pony up a penny of your hard earned and well deserved VA Disability Benefits. Anything else is contrary to the VA Law.

Secured Credit Cards

Does it feel like your good credit has fled the country?
One credit repair professional told me all about how to get all the bad things off of my credit reports. Most credit repair people operate this way. Sounded great at the time. At some point, however, I realized that based on what I knew about credit reporting, then once the bad stuff was gone, there would be nothing left at all. An old HeeHaw song came to mind, “If it weren’t for bad luck, I’d have no luck at all.” I was pretty sure I was right, but he just kept saying, don’t worry about it. I found out later that I should have worried about it, I should have worried about it a lot, and I should have worried about it a whole lot and a whole lot sooner.

Yes, once the credit repair of my credit reports was done, they were newly baptized and cleansed of the sins of the past. Yet they were newborn babies with no credit history left on them. Tabula Rasa. I had been right all along. At that point I did what so many lawyers do, I got mad and was done with him as my credit repair guy. I didn’t ask and he didn’t offer any way to quickly somehow fix the situation. I should have. Instead, when I realized that I had been right, without the aid of anyone, it took me another year to rebuild my credit scores and rating using traditional methods, and in the mean time, home prices soared and I was punked by my own actions and inactions.

The solution that my wife and I did use was this: which was both simple and effective, and also slow. Not an overnight solution but it worked like a charm. A long slow charm. I went into my own bank, and bought a credit card. It’s called a secured credit card. Give them $300, $500 or $1,000 and they give you a credit card with a credit limit of $300, $500 or $1,000, however much you give them.

As a married couple, or if you have a long time significant other, (don’t do this with someone hardly know) you each go to your bank and ask for a secured credit card, and after a little while, put each other on each other’s card. Then each has two credit cards with which to build a positive credit history.

Of course, if you don’t have that that special someone, just go to a different bank and get a second secured card. 

From there, it’s a matter of creating a favorable credit history. There are several factors that go into that formula but the essential steps are: 1) Never miss a payment 2) Keep Low Balances. 3) Pay more than the minimum payments.

An excellent method of creating this credit history is to only buy something on the credit card when you have the cash already in your own savings account. So, say you want a new gigantic flat screen TV. If the TV costs, $1500, first put the $1500 in the bank, then use the credit card to buy the TV. Now what you do is to pay off the secured credit card in 3rds over 3 months.

Your good credit’s greatest enemy is in most cases, your own family’s dire needs. If someone in your family is having a rough time and says “hey, I need $800 to pay off a gambling debt,” or “pay my rent” or “pay my dentist” or “pay my car payment before it gets repossessed” or . . . Whatever it is, you must tell them to hide from the bookie, hide the car, brush and floss a lot, and wait a while.

Pay your credit card off in 3rds. If you give away your $800 you have poisoned your credit score!!!

And what’s even worse, he’ll probably just gamble your $800 away too. If the car payment is brought up current status, and they still don’t have a job, then in a couple months they’ll be right back where they are today. If they are behind on rent now, next month they probably will be again.

My favorite example is the dentist, if they pay the dentist and the tooth is fixed but because you helped them, your plan to repair your credit gets derailed, then you have ruined your ability to really help your family when things get truly critical. If you can buy your house at a low interest rate, then you’re either buying more house or doing it at a lower payment. Either way, he can move in with you. Perhaps more importantly, with a low interest rate and a more affordable house payment, you can help more people in more ways. And that can make it possible to truly help your family when times are tough and you’re all struggling.

Don’t be a knave-faced Jackanapes like I was. Exceptional credit can make it possible to help your family in ways that you wouldn’t otherwise be able to do with merely decent or even good credit. Guard it carefully.