Veterans and Bankruptcy – What Do I Need to Know and Will I Lose My Benefits

/by

Hundreds of thousands of veterans fall into serious financial difficulties each year, and many consider bankruptcy protection as one of their options. While just 10% of the total U.S. population are veterans, nearly 15% of those who file for bankruptcy are in this class. But, Chapter 7 bankruptcy has certain requirements, such as passing a “means test.” So, it’s a valid concern if you’re a veteran that some of your VA benefits might be in jeopardy. 

In fact, there are special bankruptcy rules that apply to active duty military and disabled veterans. If you believe that personal bankruptcy might be the best solution to your financial troubles, here is what you need to know. 

Military Members and the Means Test Exemption

The “means test” is a way to determine whether you are qualified for a Chapter 7 “straight bankruptcy” versus a Chapter 13 “adjustment bankruptcy.” It is based on your income and monthly expenses. The means test is a big deal because many people would rather file under Chapter 7, but some may not qualify because of their income. 

One of the ways to avoid taking the means test is having an active duty/homeland defense exemption. According to the U.S. Bankruptcy Code, you do not have to take the means test if, at any time after September 11, 2001, you were or still are a member of the National Guard or Armed Forces who served for the homeland defense or on active duty for at least 90 days. To qualify, you must file your Chapter 7 bankruptcy case either while still on active duty or within 540 days after your duty ends. 

Disabled Veterans and the Means Test Exemption

Another way to avoid the means test is to meet some strict requirements related to veteran disability compensation. Specifically, the U.S. Bankruptcy Code states that you do not have to take the means test if:

  • You are at least 30% disabled and collect veteran disability compensation; or
  • You were released from active duty or discharged from service due to a disability incurred or aggravated in the line of duty. 

AND

Your financial troubles must have happened during a period in which:

  • You were performing a homeland defense activity; or
  • On activity duty. 

Unfortunately, these are some strict requirements that not many veterans would be able to meet. The good news is that the rules related to the means test were updated several years ago, making it easier for veterans to get the financial relief they need and deserve. 

Excluding VA Benefits in the Means Test Through the HAVEN Act

Since the 1990s, the number of U.S. military veterans receiving disability benefits has doubled. There are now roughly 4.75 million vets receiving disability payments, and more than 100,000 vets file for bankruptcy protection annually. 

Since many veterans didn’t fit into the strict exclusions established by the U.S. Bankruptcy Code, their disability benefits were considered disposable income under the means test. Not only did this disqualify them for Chapter 7 bankruptcy, but it forced them into Chapter 13 bankruptcy and took some of those benefits to pay off creditors. 

In 2019, a bipartisan effort in Congress passed the Honoring American Veterans in Extreme Need Act, or HAVEN Act. This Act amended the Bankruptcy Code to exclude many benefits from a debtors’ monthly income during the means test. 

Under the HAVEN Act, any benefits that a person receives from the U.S. Department of Veterans Affairs (VA) or the U.S. Department of Defense (DoD) do not need to be considered in the means test. This makes it much easier for someone having financial difficulty to qualify for Chapter 7 bankruptcy and have their debts discharged quicker. 

There are a few limitations to the HAVEN Act. The exemption may not apply if the veteran:

  • Receives retirement benefits as well as temporary disability benefits; 
  • Receives special compensation payments monthly from the DoD; or
  • Has enough disposable income to pay at least one-quarter of their debt over five years. 

In addition to relief through the HAVEN Act, your state’s bankruptcy exemption laws might provide some protection for veteran’s benefits. And the Servicemembers Credit Relief Act (SCRA) provides additional relief to servicemembers from various debt collection actions, both inside and outside bankruptcy. 

If you are a current or former servicemember who needs financial relief, a trustworthy bankruptcy attorney can answer your questions and guide you through this process. Gulf Coast Bankruptcy is committed to providing people with the resources they need to make informed decisions about their financial future. 

What do I need to bring to my first meeting with a Bankruptcy Attorney?

/by

Filing for bankruptcy is never anyone’s first choice. It’s a tough decision that generally comes after a long struggle with financial issues and having to deal with ruthless creditors. But, if you’ve decided that bankruptcy is right for you, the process will go more smoothly if you come prepared for your first meeting with your bankruptcy attorney. Here’s what you need to know.

Don’t Be Shy or Embarrassed

By the time most people summon the courage to contact a bankruptcy attorney, they are often feeling some shame about their financial situation. In the current economic climate, there is nothing to be embarrassed about. Bankruptcy law firms are in the business of helping people get financial relief in the face of challenges, not passing judgment. 

It’s not uncommon to experience a wide range of emotions during the first meeting with a bankruptcy attorney. You might feel sadness, anger, fear, loss, and even relief. These are all natural feelings as you work on solutions to your financial difficulties. 

Questions a Bankruptcy Attorney Will Ask

Before you have to produce any paperwork, the bankruptcy law firm will have some preliminary questions about your finances and life. Some of those questions are likely to include:

  • Your marital status
  • Number of children
  • Household income
  • Any businesses you own
  • Back taxes owed
  • Past bankruptcy filings
  • Any judgments against you
  • Any recent transfers of property
  • Any child support or alimony in arrears

Documentation You Should Bring

In addition to being ready to answer some questions, you’ll want to show up for your initial meeting with an attorney prepared with some documentation. Here is a checklist of the paperwork you’re going to need to file bankruptcy:

Financial Records

  • Most recent bank statements (at least six months)
  • Your most recent pay stubs (six months)
  • Past three years of tax returns
  • W2 forms
  • Your check register
  • Copy of your credit report
  • Invoices or bills for purchases in the past year
  • Most recent payment coupons for real estate loans, vehicles, and student loans
  • Copies of recent credit card bills
  • Copies of other bills – medical bills, overdue utility bills, etc. 
  • Copies of any other loan documents
  • Collection letters
  • Copies of statements for investment and retirement accounts
  • Property tax statement

Legal Records

  • File from any previous litigation
  • Copies of divorce decrees or orders for child support or spousal maintenance
  • Any lawsuits with which you’ve been served
  • Paperwork if your home is in foreclosure

Additional Documents

  • Photo ID
  • Social Security card
  • Proof of car insurance
  • Copies of any life insurance policies
  • An itemized list of your assets and debts
  • An itemized list of your monthly expenses

When your attorney reviews this documentation, as well as the answers to your questions, they will be able to tell you if you qualify for bankruptcy and what type of bankruptcy is likely to get you the best result – Chapter 7 or Chapter 13. 

What If I Forget a Document or Can’t Find Something?

The above is a relatively comprehensive list of what you will need to complete the bankruptcy process. You should gather as much of this information upfront as possible. But don’t feel pressured to have everything in hand if you can’t find a few things before your initial appointment. 

Let your attorney know as soon as possible if you are having trouble locating a piece of information. There’s a good chance they will be able to give you some direction or resources to approach. The parties you may need to contact for information usually include lenders, employers, banks, and courthouses. Provided you make a good faith effort to locate and produce a document, you shouldn’t have any problems in terms of misrepresentation. 

Questions You May Wish to Ask

You are likely to receive a lot of information in your first meeting with a bankruptcy attorney. But you should come prepared with some questions of your own. Nerves are understandable when dealing with finances and legal issues, so write your questions down and bring a notebook along with you to take some notes. Here are a few questions you might want to add to your list:

  • Should I file Chapter 7 or Chapter 13 bankruptcy?
  • Will I be able to keep my car and house? 
  • What other property will I be able to keep with bankruptcy?
  • Do I pay attorney’s fees upfront, or are other arrangements possible? 
  • What do the fees include and not include?
  • What does the bankruptcy process involve? 
  • How long does the bankruptcy process take?

At Gulf Coast Bankruptcy Attorney, our mission is to provide those who are dealing with overwhelming debt the information they need to make informed decisions about their financial future. 

Could I Lose My Home If I File for Bankruptcy?

/by

Owning a home has been a part of the “American Dream” for generations. If you’re struggling with debt, you might fear losing one of the most valuable assets you own – your home – when you file for bankruptcy relief. But, with the right strategy, you should be able to keep your home and some other assets with personal bankruptcy.

Will I Lose My Home If I File for Bankruptcy?

Most people file for bankruptcy to get relief from overwhelming debt. And much of that debt is unsecured, meaning it isn’t backed by an asset like a home or vehicle. When you eliminate the debt you are unable to pay, it can make it easier to keep your home.

Mortgages are considered secured debt, meaning the lender has an ownership interest in the property. As long as you continue to make payments, you’ll probably be able to keep your home. But there are some exceptions.

When you file for personal bankruptcy, the three factors that determine whether you can keep your home include:

  • The type of bankruptcy you file (Chapter 7 vs. Chapter 13)
  • How much equity you have in your home
  • If you can afford your continuing mortgage payments

The Type of Bankruptcy You File and Your Home

When you file for personal bankruptcy, you’ll have the choice between filing for Chapter 7 or Chapter 13. There are similarities and differences between the two. If you’re behind on your mortgage, Chapter 7 may not be the best option because there is no mechanism available to help you get caught up.

As long as you are current with your mortgage payments, you may be able to keep your home with either Chapter 7 or Chapter 13. You are entitled to certain exemptions with bankruptcy. An exemption refers to the value of the property you can keep.

The goal of bankruptcy is to give you a fresh start, not to leave you homeless. There are federal and state bankruptcy exemptions. But state exemptions often either mirror or take precedence over federal ones. Basically, if your property is worth less than the exemption value, you don’t have to give it up.

As a general rule, Chapter 7 bankruptcy exemptions are lower and less flexible than Chapter 13 exemptions. While you may be able to keep your home with either type of bankruptcy, you have a better chance with Chapter 13.

How Much Equity Do You Have in Your Home?

When you file for bankruptcy, the court assigns a trustee to your case. That trustee is the one that reviews your debts, deals with creditors, and decides what you can keep and what must be liquidated or surrendered.

When you file for Chapter 7 bankruptcy, the trustee doesn’t look at the “value” of your home but rather how much equity you have in it. Equity refers to the market value of your home minus the balance of any loans.

With Chapter 7, equity is essential. If you have equity in your home that is substantially above the exemption limit, the trustee will probably sell your home to pay off some of your unsecured debt.

With Chapter 13, you won’t have to sell your home no matter how much equity you have. But you might have to pay for the nonexempt portion of your equity as part of your repayment plan.

Can You Still Afford Your Mortgage Payments?

If you decide to keep your home during the bankruptcy process, the trustee will want to see that you can afford to make the ongoing payments. After all, it wouldn’t make sense to file for bankruptcy protection only to put yourself in a poor financial position moving forward.

As long as your income allows you to make the mortgage payments considering your new reduced debts, you can probably keep your home. But you may want to take a different approach. Bankruptcy offers you a unique opportunity to walk away from a mortgage as you wipe the slate clean with your other debts. If this is in your best interests, it may be worth considering.

Gulf Coast Bankruptcy Attorney works diligently to provide residents throughout the Gulf Coast region with the information they need to make informed decisions about bankruptcy and their financial future.