For years, a strange gap in bankruptcy law put veterans and servicemembers at a disadvantage compared to other debtors facing financial hardship. While Social Security income wasn’t counted against someone filing for bankruptcy, disability benefits earned by veterans and servicemembers were. That inconsistency finally changed when Congress passed the Honoring American Veterans in Extreme Need Act of 2019, better known as the HAVEN Act.
What Problem Did the HAVEN Act Solve?
To understand why this law matters, it helps to know how bankruptcy courts decide who qualifies for relief. Both Chapter 7 and Chapter 13 bankruptcy cases rely on a formula called “current monthly income,” or CMI. This number, based on the average income a person receives in the six months before filing, helps determine whether someone can file under Chapter 7, and how much they must repay creditors under a Chapter 13 repayment plan.
Before the HAVEN Act, Social Security payments were already excluded from this calculation. But veterans’ disability compensation and similar military benefits were not. That meant a veteran living on disability pay could look “wealthier” on paper than they actually were, making it harder to qualify for bankruptcy protection or forcing them into repayment plans they couldn’t realistically afford.
What the Law Actually Changed
The HAVEN Act fixed this by amending Section 101(10A) of the Bankruptcy Code to exclude a wide range of military and veterans’ benefits from CMI calculations. These excluded benefits include VA disability compensation, disability severance pay, combat-related special compensation, survivor benefits, and disability-related military retirement pay, among others. Essentially, income tied to disability, combat injury, or the death of a service member no longer counts against a veteran when a bankruptcy court decides their eligibility or repayment obligations.
There is one notable exception: for veterans receiving disability retirement pay under Chapter 61 of Title 10, only the portion that exceeds what they would have received under standard retirement rules can be excluded. In other words, if a veteran’s disability pay is only slightly higher than ordinary retirement pay would have been, just that small difference is protected.
Why It Matters
For veterans and their families navigating financial hardship, the HAVEN Act offers meaningful relief. It ensures that benefits meant to compensate for sacrifice and injury are treated with the same protection already given to other essential forms of government assistance, giving veterans a fairer shot at the fresh start bankruptcy is meant to provide.
