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How are Veterans disability benefits handled on the means test?

On Behalf of | Jun 19, 2018 | Chapter 7 Bankruptcy, Firm News

Coming to the conclusion that debts have reached an unmanageable peak is devastating for the average Florida resident. Realizing that bankruptcy is necessary when that person is a veteran might be doubly so. Unlike certain benefits, veterans disability benefits are considered income in the means test, which can affect a veteran’s ability to seek Chapter 7 bankruptcy protection.

Although both Chapter 7 and Chapter 13 bankruptcy are effective approaches to handling debt, some filers benefit more from the former. Chapter 13 sets individuals on a three to five year repayment plan before remaining unsecured debts are discharged, while Chapter 7 provides more immediate debt relief. However, those seeking this type of financial reboot must pass a means test. This test evaluates a person’s average income against the state’s average and also takes the filer’s amount of debt into consideration.

Individuals who receive Social Security disability do not include these benefits as part of their income during the means test. This is understandable, as those who qualify for such benefits might have limited means to maintain gainful or regular employment, from which they can repay their debts. However, veterans who receive veterans disability are required to count these benefits as income. The only exception to this is if a veteran incurred the debt while still on active duty. However, most vets do not accrue the type of debt that requires bankruptcy until after they leave the service.

Learning that the veterans disability benefits a person relies on might affect their ability to pursue Chapter 7 bankruptcy can be overwhelming. Although these benefits might preclude some from this process, it does not mean that they are not eligible for Chapter 13 or that all Florida veterans are automatically unable to pursue this form of bankruptcy. When determining what should be included for the means test, guidance from a counsel experienced in debt relief can minimize potential errors.

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