Veteran's Disability Protection Act of 2010

[Hopeinsight2]

The Veteran's Disability Protection Act of 2010 is a federal law that states that Veteran's Disability payments are fully protected in bankruptcy. It says they are not considered as income in bankruptcy, and that you can't be forced to use them to repay debt. I also read that most civil courts don't abide by the law. I don't understand how they can just ignore a federal law. If anyone knows about this, especially attorneys, please explain it to me. I do have an attorney, but I am not filing until October, and I have already asked him lots of questions l, and haven't paid him yet, so I am trying to understand everything I can until we meet again in September.

[justbroke]

They are exempt under Federal Law in most cases. However, many States have opted out of the Federal Exemption laws and have their own laws. In those States that opted out, the benefits may or may not be exempt under the State's laws. This is why you should hire an attorney and I read that you are.

What will really make this an interesting read is that such benefits are income as far as the bankruptcy code is concerned. The bankruptcy code itself defines income, in 11 USC 101, as all income received with only an exception for Social Security related benefits and some obscured war and terrorism related income. What actually excludes the income from attachment or process are the Federal exemption laws. But, alas, the Federal exemption laws are not used by every State since the code allows States to opt out.

Congress could have fixed this in 2005 (the BAPCPA changes of 2005) but didn't fix the definition of income as far as the Means Test is concerned. Nor did they explicitly exempt these benefits outside the Federal exemption scheme. I can not tell you what to do, but if you look at the Arkansas exemption scheme, you get to choose the Federal exemption scheme OR the Arkansas exemption scheme. From my casual reading, the Arkansas exemptions actually exempt disability payments for a variety of our nations heroes (including police, fire, etc).

I'm sorry to go off on a tangent, but wanted to show the difference between what is "income" for purposes of Means Testing and bankruptcy and what is an exemption or exempt income. They are different things and I think many people just get it wrong.

If you're really asking if you will pass the means test even with that income, the answer is that it depends. Certain service members under the SCRA and the bankruptcy code, who are also disabled, may be able to avoid the means test altogether. That is codified in the bankruptcy code under 11 USC 707 (Means Testing). While I"m a little familiar with disability ratings, I'm not sure at what level the means test would be unnecessary but the form just reads "disabled veteran". This is, again, why you should hire a good attorney that understands this practice.

From the Means Test Official Form B22


Disabled Veterans.

If you are a disabled veteran described in the Declaration in this Part IA, (1) check the box at the beginning of the Declaration, (2) check the box for “The presumption does not arise” at the top of this statement, and (3) complete the verification in Part VIII. Do not complete any of the remaining parts of this statement.

[Hopeinsight2]

Thank you for your answer. I understand that VA benefits are exempt, but if you read the federal law I am talking about, it doesn't just state that they are exempt. It is worded about the same as the social security act. And it very clearly states that it is not to be included in a bankruptcy.

5301. Nonassignability and exempt status of benefits
"Payments of benefits due or to become due under any law administered by the Secretary shall not be assignable to the extent specifically authorized by federal law, and such payments made to, or on account of, a beneficiary shall be exempt from taxation, shall be exempt from the claim of creditors, and shall not be liable to attachment, levy, or seizure by or under any legal or equitable process whatever, TO INCLUDE CIVIL AND BANKRUPTCY COURT, either before or after receipt by the beneficiary, but shall inure wholly to the benefit of the veteran entitled to the same by this act." "Veterans in receipt of all or part of disabilities' compensation payment administered by the Secretary will not be construed in any manner or form as income, whatsoever." Pursuant to Title 26 IRS Code Pub 525

We pass the means test by quite a bit, being several hundred in the negative. I just don't understand how civil courts can decide not to abide by a federal law.

The means test rule you are talking about is for veterans rated at least 30%, who have acquired most of their debt while on active duty. My husband is rated at 100% disabled, but has been out of the Marine Corps for 31 years, so that would not apply.

[justbroke]

Thank you for your answer. I understand that VA benefits are exempt, but if you read the federal law I am talking about, it doesn't just state that they are exempt. It is worded about the same as the social security act. And it very clearly states that it is not to be included in a bankruptcy.

There is no point in arguing the law. Veteran disability benefits in "5301" are neither Social Security benefits nor treated as such. If you read what you wrote, it is regarding "assignability". It does not define what is income. The bankruptcy code is quite clear and the case law is quite clear on this topic. Exemption is an entirely different topic. Remember, that Congress chose very specifically to use the words "Social Security Act" when listing the only three (3) types of regular payments that were not to be included in the definition of "current monthly income". It does not matter that a section of the U.S.C. is worded "like" the Social Security Act. It only matters that Congress chose not to carve out an exclusion in the bankruptcy code (Title 11 Section 101) from the definition.

As I wrote earlier, if you satisfy what the VA (under Title 38) defines as a disabled veteran (I won't quote the percentage here), then your benefits are exempt from attachment or assignability. That wording does not define it as something other than income. It's simply "not" assignable.

You have to remember that the means test is meant to have debtors, that can afford to pay something to unsecured creditors yet still deserving of a discharge, still receive a discharge but under (Title 11) Chapter 13. Those debtors that cannot afford to pay something, based on the means test, are eligible for a Chapter 7 so long as they meet all the other requirements to be a debtor under the code.

Remember, that a Chapter 13 bankruptcy is voluntary. A bankruptcy court can't take your disability payments and give them to a creditor. A bankruptcy court, however, is bound to include all income (with the 3 exceptions), in the calculations that it must make under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005. That income inquiry includes all income regardless of source or taxability. The only exception in the Federal law as far as the means test is concerned are those benefits that are under the Social Security Act (and some obscure war-related and terrorism related benefits).

The VA disability benefits are not part of the Social Security Act.

You could file Chapter 7. If they find that you don't qualify for Chapter 7 because you fail the means test, then that is because your "income" (as defined by the bankruptcy code), exceeds a certain threshold and that you are able to provide a meaningful payment to unsecured creditors in a Chapter 13 (Reorganization). Remember, it's voluntary, so if you don't want to be in a Chapter 13, you just dismiss your Chapter 7 case.

That's my understanding and my understanding is based on case law.

We pass the means test by quite a bit, being several hundred in the negative. I just don't understand how civil courts can decide not to abide by a federal law.

The U.S. Bankruptcy Court is a division of the U.S. District Court and thereby abides by Federal law. Should Congress had chosen to exclude other income or benefits under some other act, other than the already included Social Security Act, then they could have done that once again in 2005 when they did a major re-write of the code. They chose not change the definition of "current monthly income" and we have to give deference to Congress that the drafters of the BAPCPA (and prior bankruptcy overhauls) knew exactly what they were doing. If you are unaware, the supposed purpose of the BAPCPA of 2005 was to make sure "more" people ended up in Chapter 13s and that the determination would be a "mechanical" test rather than leave it to Judges to make these determinations.

I think that you're caught up on the difference between the words (and definitions of) "exempt" and "income". They are completely different words with entirely different meanings.

(I probably need to add this: A Chapter 13 is an entirely voluntary form of bankruptcy reorganization for certain qualified debtors. You obtain the protection from the court while paying certain debt. When you go into Chapter 13, you're asking the bankruptcy court to protect you from creditors while you address arrears, taxes, and other debt. In exchange, you pledge all of your disposable income. Now, the disability benefits are not disposable income and they can't force you to pay the creditors. However, if you want to keep your home while paying off the arrears, you're going to need to actually pay and those payments may include some of your disability benefits. That voluntary payment is not an "attachment" and is not because of some levy action or assignment. The kicker is whether you need to contribute something to the unsecured creditors in this scenario. I don't believe that you would unless you had other income that was not related to this benefit. In other words, the amounts in excess of the benefit could be included as "disposable income" (DMI) and subject to distribution by the Trustee for the benefit of the unsecured creditors.)

[Hopeinsight2]

I absolutely understand the difference between exempt and income. The bankruptcy court can't disobey a federal law. You are the one who is arguing law. I was just explaining the federal law I was talking about, since you apparently don't have ANY idea what it is.
You appear to be a know it all who wants to try to make everyone think you are smarter than them. I am a very intelligent college graduate with a masters degree who taught school for 34 years. I don't need for you to talk to me like you think I am stupid. Get off your high horse. This site is supposed to be helpful and polite.
We have already met with our attorney 3 times, and he is certain we will have no problem with a ch 7. We have VA Disability and Social Security disability. You seem to think that I am super worried about not having a successful ch 7, and you are acting like I am trying to get out of paying my creditors. I am very offended. I was simply inquiring about a law.

I thought this was a helpful site, but I can see that I was mistaken. You give the site a very bad impression. Goodbye.

[justbroke]

I absolutely understand the difference between exempt and income. The bankruptcy court can't disobey a federal law. You are the one who is arguing law. I was just explaining the federal law I was talking about, since you apparently don't have ANY idea what it is.

I apologize. I actually wrote that I am "not" arguing; I was providing the relevant information. You are reading way too much into what I posted. When moderators respond, we tend to provide all the relevant information regarding the question. You indicated that you "don't understand how they can just ignore a federal law" and that '[i]f anyone knows about this please explain it to me". I attempted to explain, in gory detail, as to how the code works, how the amendments were put in place, why Congress chose to do that in 2005 under the BAPCPA, and that this "income" question is quite settled law.

When moderators post, we take into consideration everyone who may visit BKForum and to make sure additional confusion or ambiguity is not inserted into the discussion, My purpose was to show the difference between something that is exempt from process and how that is related to the bankruptcy code's definition of "current monthly income" (as used by Means Testing). That definition is not in opposition to anything in the SCRA at all. We (the BKForum community) are a resource-based community and provide the best information to debtors that use our resource.

You asked about the law regarding why "disability benefits" under the SCRA were treated as "current monthly income" (CMI) under bankruptcy law. Unfortunately it is income under the law, but at the same time, it is not subject to process under other Federal law.

I'm sorry that you believe the information is not helpful. Others may want to know why that type of benefit, while it may be "exempt", fits the exact definition of "current monthly income" (CMI) as defined by the bankruptcy code.

I was trying to help you, but you seem to want a different answer which just does not exist. And, that's okay. But, nowhere did I mention that you were trying to get out of paying creditors, or that I was worried that you were worried about obtaining a discharge under Chapter 7 of the bankruptcy code. (Nor did I imply or even mean to imply that you were doing anything at all. I was simply answering your question.) You asked for an explanation because you didn't understand how one Federal Court could treat something under Federal law differently than what you believe is wrong.

Which only leaves the question, then why did you ask the question?

(Please go back and read what I wrote and hopefully you'll see that it's a teaching tool and meant to be educational for all future members, posters, and lurkers that visit BKForum. I apologize for being thorough.)

[LadyInTheRed]

Hopeinsight2, Justbroke spent a lot of time trying to answer your question in an attempt to help you and anyone else with the same question. I can't find anything insulting or offensive in Justbroke's posts, only a very detailed explanation of how veterans benefits are treated in bankruptcy and why, despite the law you cite (incorrectly as I will explain later), VA benefits are considered income in BK. Bkforum does not claim to give professional legal advice. It is a forum in which people who have their own personal experience in bankruptcy (and even a lawyer or two and others with professional BK experience), try to provide information to others based on their own experiences. Sometimes we even do a little research to help answer questions. Justbroke filed pro se Chap 13 that was converted to a 7, has a lot of valuable information to share and has helped hundreds and maybe thousands of people over the years, just out of a desire to help complete strangers. If you don't like an answer, you are fine to disregard it. If you take offense when none was intended, that is your unfortunate choice.

You don't even seem to have a real problem or need help, but have an academic question of how state courts can disregard a federal law. Your question seems to be based partly on a bill that never passed. I'll try to help, despite my annoyance at the insulting remarks you made about justbroke and BKforum (on which I also donate a lot of time in order to help people), because I am an odd person who actually enjoys researching and interpreting the law.

The Veteran's Disability Protection Act of 2010 is a federal law that states that Veteran's Disability payments are fully protected in bankruptcy.

No, that act is not a law. Somebody apparently drafted a bill, but I can find no evidence that it was ever even introduced in congress, despite an article by Veterans Today that suggests it was introduced in June 2010 but provides no bill number. Even if I missed something and it was introduced, it never became law.

Here's the draft law: http://offe.org/Bill_5301_final.pdf

You posted the following which appears to be partially a quote from that draft bill and partially Section 5301 that the law the bill would have amended.

5301. Nonassignability and exempt status of benefits
"Payments of benefits due or to become due under any law administered by the Secretary shall not be assignable to the extent specifically authorized by federal law, and such payments made to, or on account of, a beneficiary shall be exempt from taxation, shall be exempt from the claim of creditors, and shall not be liable to attachment, levy, or seizure by or under any legal or equitable process whatever, TO INCLUDE CIVIL AND BANKRUPTCY COURT, either before or after receipt by the beneficiary, but shall inure wholly to the benefit of the veteran entitled to the same by this act." "Veterans in receipt of all or part of disabilities' compensation payment administered by the Secretary will not be construed in any manner or form as income, whatsoever." Pursuant to Title 26 IRS Code Pub 525

The red text is what the draft bill would have added section 5301 if the bill had been introduced, passed by Congress and signed by the President.

Here is subsection (a)(1) of 38 U.S. Code § 5301 as it currently reads. It was last amended in 2003.

Payments of benefits due or to become due under any law administered by the Secretary shall not be assignable except to the extent specifically authorized by law, and such payments made to, or on account of, a beneficiary shall be exempt from taxation, shall be exempt from the claim of creditors, and shall not be liable to attachment, levy, or seizure by or under any legal or equitable process whatever, either before or after receipt by the beneficiary. The preceding sentence shall not apply to claims of the United States arising under such laws nor shall the exemption therein contained as to taxation extend to any property purchased in part or wholly out of such payments. The provisions of this section shall not be construed to prohibit the assignment of insurance otherwise authorized under chapter 19 of this title, or of servicemen’s indemnity.

https://www.law.cornell.edu/uscode/text/38/5301

The red text is an important word left out of your quote that the draft bill would not have removed (unless I missed something).

Note that IRS Pub 525 referred to in the draft defines what is taxable income which is different from how income is defined in BK.

I also read that most civil courts don't abide by the law. I don't understand how they can just ignore a federal law.

Courts can't ignore federal law, but they sometimes misinterpret it's effect on a specific case. When somebody thinks a court got it wrong, they can appeal the ruling. It is hard to explain what you read about civil courts not abiding by the law without more information about what you read. But, from what I found, I think you may be talking about articles that disagree with courts' interpretations of the law. The draft bill was an attempt to edit the law to favor an interpretation other than what courts have found.

[justbroke]

LadyInTheRed you are my hero. I didn't even realize that the quoted material was not included in the current law because I only referenced current law. I also use the Cornell Law site for references to the United States Code as well as committee notes.

This proposed text was apparently in H.R. 3219, which was subsequently signed into law in 2010. However, 38 USC 5301 was not amended as part of the bill after it went to committee. (Enrolled Version: https://www.govtrack.us/congress/bills/111/hr3219/text#). The last time 38 USC 5301 was amended, according to Cornell Law, was in 2003 which is what you stated. So Congress chose not to include whatever language that was proposed at some point.

Thanks for the extra research. It's appreciated. I learned a little more today!