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Bankruptcy for Veterans: Legal Support and Financial Solutions

Our country owes every veteran an unrepayable debt of gratitude. Serving in the United States Armed Forces is a brave and noble choice. Unfortunately, veterans may face financial difficulties just like anyone else. If this is your situation, you may be wondering about your options for debt relief, including bankruptcy. 

Financial Risks Faced by Veterans

There are an estimated 17.9 million veterans in the United States, making up about 6.8% of the adult population. According to a 2021 study by the Military Family Advisory Network, nearly 40% of veterans admit they have less than $500 in emergency savings or no money saved at all. And more than 80% of veterans surveyed indicated they felt stress over the past year due to their finances. 

It only takes a single unplanned medical emergency, vehicle breakdown, or home repair to create a financial hardship that is difficult to recover from. Many veterans suffer from service-related disabilities and face challenges in receiving adequate financial support. While federal law entitles veterans to many valuable benefits, they may not be enough to deal with severe financial hardship. 

Is Bankruptcy for Veterans the Answer?

Bankruptcy is only one option when you are facing unmanageable debt. If you are a current servicemember, the Servicemember Civil Relief Act (SCRA) is a federal law meant to ease financial burdens in many ways. For example, the law allows you to limit interest rates, delay payments, and prevent repossession under certain circumstances. 

Other options include using a VA Cash-Out Refinance Loan to get funds from your home’s equity and pursuing credit counseling. If these aren’t available to you and you are being harassed by creditors, it may be wise to consider your bankruptcy options. 

Bankruptcy Options for Veterans

Veterans have the same bankruptcy options as non-veterans. However, they also have a few additional advantages thanks to their status. If you are filing for personal bankruptcy, you can file either a Chapter 7 or Chapter 13 bankruptcy. There is no special bankruptcy class for military members. Here is what you need to know about each type and how your veteran’s status might impact your personal bankruptcy. 

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the simplest and quickest form of bankruptcy for individuals. It can erase most of your unsecured debts, also allowing you to keep personal belongings and other property up to a certain amount.

Most people who file for Chapter 7 bankruptcy have to pass a “means test” to qualify. However, certain veterans are exempt from taking this means test. You would automatically qualify for Chapter 7 bankruptcy if you:

  • Are a disabled veteran with a 30% or higher rating
  • File within 18 months of leaving active duty
  • Are continuing to serve in the reserves

Chapter 13 Bankruptcy

If you cannot qualify for a Chapter 7 bankruptcy because of the means test or have other assets you wish to hold onto, you might consider filing for Chapter 13 bankruptcy. This is a “repayment bankruptcy,” which requires that you make a single reduced payment to your creditors over a period of 3-5 years. Once you complete this program, the remainder of your unsecured debts are forgiven. 

HAVEN Act Benefits for Veterans in Bankruptcy

The Honoring American Veterans in Extreme Need Act of 2019, also known as the HAVEN Act, addresses how veterans’ benefits are included in calculating income for the purposes of bankruptcy. Prior to the passage of this law, veterans were required to include certain benefits as disposable income, which resulted in many not being able to pass a means test.

The HAVEN Act protects various veterans’ benefits from income calculations related to personal bankruptcy. Among the benefits protected include:

  • VA Veterans Pension
  • VA Veterans Disability Compensation
  • Combat-Related Special Compensation
  • Special Survivor Indemnity Allowance
  • VA Dependency and Indemnity Compensation
  • Survivor Benefit Plan for Chapter 61 Retirees

Benefits of Bankruptcy for Veterans

If you are dealing with crushing debt and don’t see another way forward, it may make sense to pursue personal bankruptcy. One of the benefits of filing for bankruptcy is that it gives you instant relief from debt collectors. As soon as you file, you get an “automatic stay,” which prevents debt collectors from any further contact, such as making harassing phone calls. They will also be prevented from any wage garnishment or repossession actions. 

Another benefit of bankruptcy is that it gives you a fresh financial start. Whether you choose Chapter 7 or Chapter 13 bankruptcy, all or some of your unsecured debt will be erased. This will give you the breathing room you need to move forward with confidence. 

Bankruptcy is one of the many debt relief options available to veterans who are facing unmanageable debt. But it’s not right for everyone or something you want to jump into without a full understanding of the facts. An experienced bankruptcy attorney can review your situation, explain your options, and guide you through the bankruptcy process if you decide it is right for you. 

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

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. 


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.