Veterans have some special protections under the law, but they also face some hurdles, bureaucratic and otherwise. A veteran receiving disability benefits who undergoes Chapter 7 bankruptcy will face some unique obstacles. Disability benefits are counted as income and hamper a veteran's chances for achieving a discharge of their debts and a fresh financial start.
Social Security benefits are not counted as income when a recipient files a Chapter 7 bankruptcy petition. This increases the odds that the debtor can remain in Chapter 7 and take advantage of its opportunities for completely discharging their debts. Veterans' disability benefits, however, are counted as income under the means test of bankruptcy law. For veterans who served and became disabled, the disability income is treated as an additional benefit that will push them into a Chapter 13 bankruptcy plan and reduce the chances for a complete Chapter 7 discharge.
There is a limited exception, however, for a debtor with a disability who has incurred debts while in military service and before discharge. However, most medical debt is acquired after military discharge, which eliminates this narrow exclusion for many veterans.
Retailers are also reluctant to provide credit to servicemembers who have less discretionary spending because their disposable income is tied up under a Chapter 13 bankruptcy plan. This has a rippling effect on small businesses and retailers who lose customers.
An attorney can help debtors who receive military or Social Security disability benefits seek a reasonable and fair bankruptcy plan. They can also help debtors ensure that their rights are protected under bankruptcy laws.