By: Litigation and Creditors’ Rights & Bankruptcy Practice Groups
News Update – On Friday, August 23, 2019, President Donald Trump signed the “Honoring American Veterans in Extreme Need Act of 2019” into law.
Last week, the U.S. Senate unanimously passed the bipartisan Honoring American Veterans in Extreme Need Act of 2019 (H.R 2938) (“HAVEN Act”). The HAVEN Act, which was passed by the House of Representatives in late July, amends the definition of “current monthly income” in the U.S. Bankruptcy Code to exclude Veterans Affairs and Department of Defense disability payments.
Current Monthly Income Impacts Debtor Eligibility for Chapter 7 Relief
“Current monthly income,” as defined in 11 USC § 101(10A) is the “average monthly income from all sources” that a debtor receives in a 6-month period prior to filing for bankruptcy. It is an important number in determining whether certain types of bankruptcy relief are available to a debtor. If a debtor’s current monthly income is too high, Chapter 7 relief is not available to the debtor.
Veterans Affairs and Department of Defense Disability Payments Previously Included in Monthly Income Calculations
Before the HAVEN Act, only social security payments and certain relief payments to victims of war crimes, crimes against humanity or terrorism were specifically excluded from current monthly income. So, a disabled veteran or the surviving dependent family members of a deceased veteran would have to include any VA or DOD disability payments in a calculation of current monthly income—potentially cutting off Chapter 7 relief. The debtor would have to file a Chapter 13 petition instead—and likely have use some of those VA and DoD payments to pay creditors under the Chapter 13 plan. These benefits could therefore unintentionally become barriers to veterans and their families seeking bankruptcy protection.
HAVEN Act Adds VA and DoD Payments to Income Exclusions
To correct this problem, the HAVEN Act adds VA and DoD disability payments made “in connection with a disability, combat-related injury or disability, or death of a member of uniformed services” to the list of exclusions from current monthly income in 11 USC 11 USC § 101(10A)(B). You may read a full version of the HAVEN Act at https://www.congress.gov/116/bills/hr2938/BILLS-116hr2938enr.pdf.
Next Steps for HAVEN Act
The HAVEN Act now goes to President Trump, who is expected to sign it. While the expanded exclusions are a welcome and deserved benefit to American veterans and their families, creditors should nevertheless familiarize themselves with the HAVEN Act and its potential effect on them. Creditors should be aware that their recovery options in bankruptcy will be limited if the debtor relies primarily on VA or DoD disability because more of these debtors will be able to qualify for Chapter 7 relief.
If you have any questions about how the HAVEN Act may affect your recovery efforts, please contact one of the attorneys in our Financial Services Industry Group.
Joshua Feil is an associate in the Litigation and Creditors’ Rights & Bankruptcy practice groups. The information in this article is not intended to provide legal advice. For professional consultation, please contact Erich Paetsch or Joshua Feil at Saalfeld Griggs PC. 503.399.1070. jfeil@sglaw.com © 2019 Saalfeld Griggs PC.
