How do Disability Benefits Affect the Bankruptcy Means Test
My question involves bankruptcy in the state of: Washington
I would like to file for Chapter 7 Bankruptcy, but I also receive about $973 a month in VA Disability Compensations.
Do I have to include this in the means test as income since it is not considered income per the IRS?
Also, if the bankruptcy cannot force someone to use VA Disability to pay back unsecured debt and some other debt, then why should it even be included?
Any advice would be appreciated.
Re: Bankruptcy Means Test - VA Disability Compensation
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elidoe
My question involves bankruptcy in the state of: Washington
I would like to file for Chapter 7 Bankruptcy, but I also receive about $973 a month in VA Disability Compensations.
Do I have to include this in the means test as income since it is not considered income per the IRS?
Also, if the bankruptcy cannot force someone to use VA Disability to pay back unsecured debt and some other debt, then why should it even be included?
Any advice would be appreciated.
You must include it when computing the means test. The basic idea of the means test is to see what funds you have available to pay creditors on a monthly chapter 13 plan; if you can pay a significant chunk of your debts in a Chapter 13 then Congress figures you should do that instead of just getting to wipe your debts off the books with your creditors getting little or nothing. Since your VA disability benefit is part of the money you have available to pay your expenses, it is included with any other source of funds/benefits you have. Whether the source of the funds is taxable or not does not make a difference here. This is not a computation to determine what tax you have to pay. Note that the means test is based on what the IRS uses to determine a person’s ability to pay his/her delinquent tax obligations. The IRS includes all sources of funds in that computation, taxable or not, to figure what you can pay. If your only source of funds is $973/month and you don’t have a lot of assets then you should not have a problem passing the means test and won’t end up with an involuntary conversion to a Chapter 13.
Re: Bankruptcy Means Test - VA Disability Compensation
Thank you for the reply.
So basically, it is available money, but the court cannot force you to use it to pay creditors? Lets say the veteran decided to put it into retirement instead?
Re: Bankruptcy Means Test - VA Disability Compensation
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Quoting
elidoe
Thank you for the reply.
So basically, it is available money, but the court cannot force you to use it to pay creditors? Lets say the veteran decided to put it into retirement instead?
What assets are exempt from creditors in a Chapter 7 bankruptcy is a different matter from what you must put down when completing the means test. If you pass the means test and do a Chapter 7 bankruptcy then the trustee can only take your nonexempt assets to pay creditors. VA disability benefits are generally exempt from attachment (other than for a few things like federal taxes owed and child/spouse support obligations) so that benefit would likely not be touched in the bankruptcy. But the details of your debts matter.
If you had to do a Chapter 13 then the court will make a determination of what you will pay each month toward your creditors under the Chapter 13 plan. You only need to worry about that if you cannot pass the means test for the Chapter 7.
Re: Bankruptcy Means Test - VA Disability Compensation
I typically include it as income for means testing purposes however, I have never had a situation that, by including VA disability payments, my client did not qualify for a Chapter 7. In the context of a Chapter 13, including the payment is typically necessary to fund the Plan.
The US Trustee guidelines leads one to believe that you do not include VA disability:
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Line 10, Income from all other sources:
Includes net gambling, cash gifts, litigation proceeds, and trust income.
Includes private disability income.
Does not include SSA benefits.
Does not include tax refunds.
Does not include loan proceeds.
Whether it meets IRS test for income could be relevant, but whether it is taxable
income or non-taxable income is not a factor.
On the other side of the coin - see the below Chapter 13 decision which is the only decision I could find on a very quick review.
In re Hedge, 394 B.R. 463 (Bankr. S.D. Ind., 2008)
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[S]hould VA Disability payments be included in the Form B22C calculation of disposable income?. . .
In the present matter, the VA disability payments qualify as "current monthly income" to the Hedges. The payments, made by the United States government, are paid by an entity as that term is defined in §101(15). The payments are received on a regular basis and are presumed to be used for the purpose of helping with the Hedges' household expenses. Finally, these payments are not specifically excluded from disposable income are defined by statute. Accordingly, the VA disability payments should have been included in the calculation of the Hedges' current monthly income and therefore included in the calculation of "disposable income" in § 1325(b)(2) and on Form B22C.
Bottom line - if including the amount does not impact what you are trying to accomplish err on the side of caution. If it does, discuss with a local attny to see what normal procedure is in your district.
Des.
Re: Bankruptcy Means Test - VA Disability Compensation
Well, unfortunately, you must include any veterans’ benefits you receive when calculating your income for Chapter 7 bankruptcy. Veterans' benefits may include payments for healthcare, living expenses, and disability. In fact, for purposes of the means test you must include most types of income, other than Social Security Benefits, and in some states, unemployment compensation.