CHAPTER 3, E. Protecting Disabled Veterans in Need of Financial Assistance

• Jurisdiction: United States

E. Protecting Disabled Veterans in Need of Financial Assistance

Applying the HAVEN Act to Cases Filed Before Its Enactment

ABI Journal

December 2019

Stephen C. Matthews

DLA Piper LLP (US)

Short Hills, N.J.

William J. Diggs¹

DLA Piper LLP (US)

Short Hills, N.J.

As recent ABI Journal articles have discussed,² on Aug. 23, 2019, the Honoring American Veterans in Extreme Need Act of 2019 (the HAVEN Act) became law and amended 11 U.S.C. § 101(10A) to exclude veterans' disability benefits from the definition of "current monthly income" (CMI).³ The HAVEN Act was prompted by an oversight in the Bankruptcy Code, which excluded Social Security disability benefits from CMI while inexplicably including veterans' disability benefits. Consequently, many veterans were unable to obtain more immediate relief through chapter 7 and were instead forced into chapter 13 proceedings, where they were required to make payments to creditors over the course of up to five years.⁴ The HAVEN Act "correct[ed] this obvious inequity" by amending the Code to treat veterans' disability benefits "the same as Social Security payments."⁵

While no doubt can exist that the HAVEN Act applies to bankruptcy cases initiated after it became law, questions have arisen concerning whether the HAVEN Act should apply to bankruptcy cases that were filed before enactment. Strong arguments can be made that the HAVEN Act should apply to bankruptcy cases that were filed before it became law and that are still pending, including confirmed chapter 13 cases with ongoing repayment plans.

HAVEN Act Should Apply to Pending Cases Filed Before It Became Law

In Landgraf v. USI Film Prod.,⁶ the U.S. Supreme Court explained:

When a case implicates a federal statute enacted after the events in suit, the court's first task is to determine whether Congress has expressly prescribed the statute's proper reach. If Congress has done so, of course, there is no need to resort to judicial default rules. When, however, the statute contains no such express command, the court must determine whether the new statute would have retroactive effect, i.e., whether it would impair rights a party possessed when he acted, increase a party's liability for past conduct, or impose new duties with respect to transactions already completed. If the statute would operate retroactively, our traditional presumption teaches that it does not govern absent clear congressional intent favoring such a result.⁷

The HAVEN Act "contains no such express command"⁸ as to whether it applies to bankruptcy proceedings that were filed prior to its enactment. However, several arguments can be made as to why the HAVEN Act should apply in any pending case filed before it became law.

First, application of the HAVEN Act to pending cases filed before it became law complies with the Supreme Court's directive that "a court is to apply the law in effect at the time it renders its decision, unless doing so would result in manifest injustice or there is statutory direction or legislative history to the contrary."⁹ Under that standard, the Seventh Circuit held that a statute amending the Bankruptcy Code can apply to pending cases filed before the statute became law.¹⁰ Thus, the HAVEN Act can be applied in the same manner.

The HAVEN Act will necessarily be "the law in effect at the time" that a bankruptcy court "renders its decision"¹¹ as to pending cases filed before the HAVEN Act became law because a bankruptcy case is not closed; instead, it "remains open or pending until the court enters an order dismissing or closing it."¹² Moreover, the HAVEN Act contains no "statutory direction or legislative history ... contrary" to applying the HAVEN Act to pending cases filed before its enactment.¹³

Further, no "manifest injustice"¹⁴ will come from applying the HAVEN Act to pending cases filed before its enactment because the HAVEN Act was intended to be a "narrow error-correcting statute," which the Supreme Court has held can apply to "pending cases" where "a contrary reading would render" the statute "ineffective."¹⁵ Indeed, although the HAVEN Act and its legislative history do not expressly state whether the HAVEN Act should (or should not)¹⁶ apply to cases filed before its enactment, the HAVEN Act's legislative history makes clear that congressional intent was to "correct" the Bankruptcy Code's "obvious inequity" in failing to specify that veterans' disability benefits should, just like Social Security disability benefits, be excluded from CMI.¹⁷

Second, applying the HAVEN Act to pending cases filed before its enactment would not have a "retroactive effect," as explained by the Supreme Court to mean "impair[ing] rights [that] a party possessed when he acted, increasing] a party's liability for past conduct, or impos[ing] new duties with respect to transactions already completed.¹⁸ The HAVEN Act would not "impair rights" that a veteran "possessed" prior to its enactment,¹⁹ and would not "increase" a veteran's "liability for past conduct."²⁰ Nor would it "impose new duties" on a veteran even "with respect to transactions already completed."²¹ Although an argument could be made that application of the HAVEN Act to pending cases filed before its enactment might "impair rights"²² of creditors or chapter 13 trustees, that argument should fail because creditors and chapter 13 trustees cannot reasonably argue that they "possessed" the "right"²³ to payment from veterans' disability benefits in bankruptcy when both pre- and post-confirmation chapter 13 cases are subject to modification and conversion.²⁴ Moreover, practically, if a court is not inclined to apply the HAVEN Act to a pending chapter 13 case filed before its enactment, a veteran could dismiss²⁵ and file a new case,²⁶ at which point the case would have been filed after the HAVEN Act became law.²⁷

Third, the Supreme Court has explained that "[e]ven absent specific legislative authorization, application of new statutes passed after the events in suit is unquestionably proper in many situations," including "[w]hen the intervening statute authorizes or affects the propriety of prospective relief."²⁸ For example, the Court has held that a statute that "governed the propriety of injunctive relief" applied in a case that was pending on appeal at the time that the statute was enacted because the relief "operates in futuro."²⁹ The HAVEN Act's application to pending cases filed before its enactment is "not retroactive" because it "authorizes or affects the propriety of prospective relief'³⁰ provided to U.S. veterans, who all too often suffer from "mental health issues, addiction, suicide, poverty, and homelessness — all of which are exacerbated by financial hardship,"³¹ which is an "underpinning cause of the epidemic rates of suicide among [U.S.] military."³²

Fourth, the Supreme Court has explained that "[c]hanges in procedural rules [might] often be applied in suits arising before their enactment without raising concerns about retroactivity" because "rules of procedure regulate secondary rather than primary conduct."³³ Within the context of bankruptcy, the Court has expressly held that amendments to the Bankruptcy Rules and forms are "applicable to pending cases 'except to the extent that in the opinion of the court their application in a particular proceeding then pending would not be feasible or would work injustice.'"³⁴ An argument can be made that the HAVEN Act — which modifies a...