In Defense of Our Veterans and Service members: The Honoring American Veterans in Extreme Need Act, 0720 ALBJ, Vol. 81 No. 4 Pg. 284 (July, 2020)
| Author | By Jay R. Bender, Capt. Amy Q. Glenos and Capt. John C. Hensley. |
| Position | Vol. 81 4 Pg. 284 |
By Jay R. Bender, Capt. Amy Q. Glenos and Capt. John C. Hensley.
Military veterans and servicemembers are not immune from financial problems, including having to file for bankruptcy. The rate at which former and current members of our Armed Forces file for bankruptcy is uncertain, as the U.S. court system does not track the number of veterans and servicemembers who file for bankruptcy each year. Statistics indicate, however, that their numbers are substantial. A recent study, for example, reflects that approximately 15 percent of people who file for bankruptcy are veterans, even though they make up only around 10 percent of the national population.1
The numbers are worse for disabled veterans and servicemembers. The previously-cited study reports that disabled persons comprise approximately 14 percent of the overall U.S. population, but constitute approximately 26 percent of the annual population filing for bankruptcy.2 Although there are no statistics focusing solely on the bankruptcy rate for disabled vets and servicemembers, that population is undoubtedly large, given that there are 4.75 million American veterans–one-quarter of the entire U.S. veteran population–who are receiving Veterans Administration (VA) and/or Department of Defense (DoD) disability benefits.3
Alabama has its share, with approximately 100,000 veterans in our state receiving VA and/or DoD disability benefits.
However, until Congress passed The Honoring American Veterans in Extreme Need Act (the “HAVEN Act”),[4] disabled vets and servicemembers suffering financial distress did not have all of the protection that they needed.
Bankruptcy Law before the HAVEN Act’s Recent Enactment
Before the HAVEN Act became law in August 2019, disabled veterans and servicemembers did not have certain protections under the U.S. Bankruptcy Code. The old law is best demonstrated through the following hypothetical: Three people–Xavier, Yvonne, and Zach–are in tough financial straits and are thinking about filing for bankruptcy. They all appear to be in the same exact financial condition: they each own the same assets, owe the same debts, and receive the same amount of income. The only financial difference among them is the source of their income. For Xavier, Social Security disability benefits are his only source of income. Yvonne’s income all comes from payments she receives because she was a victim of both war crimes and international terrorism. Finally, Zach’s only income is the disability benefits he receives from the Department of Veterans Affairs (the “VA”) for injuries sustained while serving in combat on behalf of our country.
It would have been reasonable to expect that Xavier, Yvonne, and Zach would all have been treated identically under the Bankruptcy Code. Unfortunately, prior to the HAVEN Act’s recent passage, Zach–the disabled American veteran–had more limited access to relief under the Bankruptcy Code than did Xavier or Yvonne.
How did it happen that disabled veterans and service-members–of all people–were disfavored under our bankruptcy laws? The answer can be traced back to 2005, when Congress revised the Bankruptcy Code to address some perceived problems in the bankruptcy system. Many in Congress believed that too many men and women with regular disposable income were abusing the bankruptcy system by filing liquidating Chapter 7 bankruptcies–which did not require them to pay any of their future earnings to their creditors–rather than Chapter 13 bankruptcies that required payment of some of their future disposable income toward partial or full payment of creditors’ claims. Congress also believed that too many bankruptcy judges were being lax in permitting Chapter 7 filings, rather than requiring Chapter 13 filings, to the detriment of creditors.
In response to these perceived abuses, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”).5 Among other things, BAPCPA creates an objective standard– known as the “means test”–for determining a presumption of which individuals should be required to file for Chapter 13 bankruptcy.
Because a debtor’s income was the cornerstone of BAPCPA’s “means test,” Congress mandated what would constitute a debtor’s income for bankruptcy purposes. BAPCPA established a standardized formula for determining a debtor’s disposable income, with the starting point being the debtor’s “current monthly in-come,”6 a new term introduced to the Bankruptcy Code by the statute. BAPCPA’s definition of “current monthly income” was extremely expansive, encompassing a debtor’s average monthly income from all sources that the debtor received. From that...
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