CHAPTER 10 ACCESS TO BANKRUPTCY
| Jurisdiction | United States |
CHAPTER 10: ACCESS TO BANKRUPTCY
Unfortunately, not every consumer has equal access to the relief provided by bankruptcy. Individuals come to be in need of bankruptcy relief through wildly different circumstances, which may also affect their ability to obtain the relief needed.
Prior to BAPCPA, judges were given discretion in determining whether veterans' benefits would be considered disposable income. With the law change came the new definition of "current monthly income," which excluded only three sources of income, of which veterans' benefits was not one. Courts have found that with the law as it currently stands the veterans' benefits must be included in the debtor's disposable income.
Those with low income are too often kept from obtaining bankruptcy relief because the cost of a legal fee is an insurmountable barrier. Traditionally the solution has been trying to find a pro bono attorney to assist the consumer, but there are insufficient attorneys available for those in need of this assistance. There are resources attempting to help cover this gap, such as state court initiatives to help with debt collection. Other ideas include internet solutions to increase access to information, video conferencing, and limited scope representation. Recognizing the barriers to bankruptcy relief is the first step in moving towards a system in which everyone in need of help will have a reasonable way of attaining relief.
A. Defending Our Veterans
ABI Journal
November 2018
Written by:
Jay Bender
Bradley Arant Boult Cummings LLP
Birmingham, Ala.
Elizabeth L. Gunn1
Office of the Attorney General
Richmond, Va.
John H. Thomson
McGuireWoods LLP
Washington, D.C.
Editor's Note: The authors are members of ABI's Task Force on Veterans and Service-members Affairs. Mr. Bender and Mr. Thompson are co-chairs of the Task Force's Legislative Subcommittee. For more information, please contact Task Force Chair John W. Ames (Bingham Greenebaum Doll LLP; Louisville, Ky.) at james@bgdlegal.com.
Part of the mission of ABI's newly formed Task Force for Veterans and Servicemembers Affairs is to "remediate and prevent adverse debt concerns and impacts on veterans and service-members to ensure that we financially strengthen those that strengthen us with the respect and dignity they deserve." To that end, the Task Force has focused much of its initial attention on the Bankruptcy Code's perplexing and inequitable treatment of veterans' benefits in consumer bankruptcy cases.
While the Code excludes benefits received by individuals under the Social Security Act from the definition of "current monthly income" and thus from an individual's "disposable income," the Code inexplicably provides no comparable exclusions for benefits received through the U.S. Department of Veterans Affairs or otherwise on account of a veteran's service. The disparate treatment of veterans' benefits presents significant hardship to some veterans, compelling them to devote these benefits — including their disability benefits — to the funding of their chapter 13 plans and restricting their ability to seek relief under chapter 7 rather than under chapter 13.
Overview: Veterans' Benefits
Pre- and Post-BAPCPA
For years, there was little (if any) debate about whether veterans' benefits paid through the Department of Veterans Affairs should be included in the debtor's "disposable income." Prior to 2005, the Bankruptcy Code allowed bankruptcy judges to exercise their discretion, based on the facts of each case, in determining what constituted a debtor's disposable income. Under the pre-2005 Code, "disposable income" was defined in 11 U.S.C. § 1325(b)(2) as:
[I]ncome which is received by the debtor and which is not reasonably necessary to be expended —
(A) for the maintenance or support of the debtor or a dependent of the debtor, including charitable contributions....
(B) if the debtor is engaged in business, for the payment of expenditures necessary for the continuation, preservation, and operation of such business.
Under this definition, it was accepted that veterans' benefits should not be considered part of a chapter 13 debtor's "disposable income." No published opinions interpreting the pre-2005 "disposable income" definition even considered that possibility, no less ruled that veterans benefits affirmatively constituted disposable income.
All that changed with the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).2 Through BAPCPA, Congress divested bankruptcy judges of the discretion they previously had to decide what would — and would not — constitute "disposable income" in a debtor's case. Congress did so by revising § 1325(b)(2) to make "current monthly income" the starting point for calculating a debtor's disposable income. A new phrase to the Bankruptcy Code, "current monthly income" was generally defined by Congress to mean the average monthly income from all sources that the debtor receives, as well as any other amount paid by an entity other than the debtor for the household expenses of the debtor or the debtor's dependents.3
From this broad definition, Congress specifically excluded three sources of income: (1) benefits received under the Social Security Act; (2) payments to victims of war crimes or crimes against humanity on account of their status as victims of such crimes; and (3) payments to victims of terrorism on account of their status as victims of such terrorism.4 For reasons that are not clear,5 veterans' benefits provided through the Department of Veterans Affairs were not excluded from the Bankruptcy Code's "current monthly income" definition.
Post-BAPCPA Case Law
Following BAPCPA, at least five courts have addressed whether a debtor's disposable income includes veterans' benefits.6 In each of these cases, the bankruptcy court held that because veterans' benefits are not specifically excluded from the Bankruptcy Code's definition of "current monthly income," these benefits must be counted as part of a debtor's disposable income. As a result, the bankruptcy judge denied confirmation of the debtor's proposed chapter 13 plan in each of these cases because the plan failed to commit all of the debtor's disposable income to funding the plan as required by 11 U.S.C. § 1325(b)(1)(B).
The most recent of those opinions is illustrative of these cases. In In re Brah, the chapter 13 trustee objected to a husband and wife's joint chapter 13 plan, arguing that it was unconfirmable because the debtors failed to include their veterans' disability benefits in their disposable income calculation upon which the plan was based.7 The debtors countered that because their veterans' benefits were not assignable nor subject to levy, seizure or attachment under applicable nonbankruptcy law,8 they were not obligated to dedicate those benefits toward funding their plan.
The Brah court sided with the trustee, finding §§ 101(10A) and 1325(b)(2) to mandate unambiguously that the debtors include their veterans' disability benefits in their current monthly income. The court surmised that had Congress intended to exclude otherwise-exempt assets from the disposable-income calculation, it could have done so by expressly excluding such assets from the definition of "current monthly income" in § 101(10A).9 In reaching its holding, the Brah court noted and addressed the puzzling discrepancy between the treatment of Social Security benefits and veterans' benefits in chapter 13 cases:
...
Although the exclusion of Social Security benefits from current monthly income suggests that [Department of Veterans Affairs] Benefits also should be excluded, the statutory exception applies only to "benefits received under the Social Security Act."... [T]he Court understands why the Debtors seek the same exclusion for their veterans' disability benefits as afforded to recipients of Social Security disability benefits. But creating this exception is a job for Congress, not the Court. The Debtors' ability to exempt these benefits does not remove the [Department of Veterans Affairs] Benefits from the Bankruptcy Code definition of current monthly income. And the fact that the benefits are not subject to attachment, garnishment or other legal process does not render the benefits immune from the disposable income calculation in a voluntary Chapter 13 plan. Accordingly, the Trustee's
To continue reading
Request your trial