If you’re a veteran struggling under the weight of overwhelming debt and you decide to file for bankruptcy, you’ll need to take a means test. That test compares your income to the median income for Minnesota households of the same size as yours. The results of the test determine which type of bankruptcy you’re eligible to file for.


Chapter 7 bankruptcy, sometimes called liquidation bankruptcy, is an option for individuals who lack sufficient income to repay their debts. Chapter 13 bankruptcy, on the other hand, is designed for people who can afford to repay some or all of their debt but need a manageable repayment plan based on their budget.


In 2019, President Trump passed the HAVEN Act, which changed the types of veteran income that can be included in bankruptcy means testing. What might this act mean for you if you decide to file? Read on to find out.


What Is the Haven Act?

The Honoring Veterans in Extreme Need (HAVEN) Act is designed to provide disabled veterans and their families with more protection in the bankruptcy filing process. Prior to the passing of this act, disabled veterans were required to include disability benefits from the U.S. Department of Defense (DOD) and the U.S. Department of Veterans Affairs (DVA) as income for the purpose of bankruptcy means testing.


But social security disability benefits have long been excluded from income for the purpose of means testing, so unfortunately, that requirement disproportionately and negatively affected many disabled veterans.


With DOD and DVA benefits included in means testing, many veterans ended up failing the means test and were forced to file for Chapter 13 bankruptcy. And as part of the Chapter 13 repayment plan, those veterans may have had to contribute some of their disability benefits to pay back their creditors.


The passing of the HAVEN Act fixed the unequal treatment of social security, DOD, and DVA benefits. Today, veterans’ disability benefits are no longer included as income for the purpose of means testing. Now, more disabled veterans can qualify to file for Chapter 7, just as disabled civilians receiving SSDI have long been able to.


How Might the HAVEN Act Affect Your Bankruptcy Case as a Veteran?

If you’re a veteran who is not receiving DOD or DVA benefits, the HAVEN Act won’t affect your means test since you’re not receiving either of the types of income the act was created to address.


If you are receiving disability benefits, the HAVEN Act can help you. Since you’ll no longer need to include those benefits as income, you’ll have a better chance of passing the means test, which will qualify you to file for Chapter 7 bankruptcy.


Even if you’re not eligible for Chapter 7, you’ll still be able to exclude your benefits when calculating your current monthly income (CMI). Doing so may affect the amount of disposable income you have available to repay creditors under the Chapter 13 repayment plan.


What Happens After You File?

In a Chapter 7 case, you will not be put on a repayment plan as you would be in a Chapter 13 case. That means there’s no possibility that you’ll need to use a portion of your disability payments to pay back your creditors, so you’ll be able to continue using 100% of your benefits for your own needs.


Instead of having a repayment plan, you’ll work with your bankruptcy attorney and trustee to determine if you own any nonexempt assets that must be sold to pay back your creditors. However, most people qualify for several exemptions that allow them to keep most, if not all, of their property.


If you end up filing for Chapter 13, the exclusion of those benefits in your CMI calculation will likely lower the amount of your monthly payments required under the repayment plan.


Schedule a Free Consultation With a Twin Cities Bankruptcy Attorney

If you’re a veteran considering bankruptcy, it’s in your best interest to speak with a bankruptcy attorney who specializes in veterans’ cases. At the Law Office of Ron Lunquist, we can help you determine which type of bankruptcy you’re eligible for and explain all of your Minnesota debt relief options in detail.


To learn more about how we can help you get out of debt and start fresh, call our Eagan, MN office today at 651-454-0007 or request a consultation online, and we’ll reach out with more information.