Disabled Veterans and the Bankruptcy Means Test
Are you a Veteran considering filing bankruptcy, you may have some surprising help with qualifying to file your case.
As part of the changes in the bankruptcy laws in 2005, most people who have income above the “median income” have to go through a special analysis called the “statement of current monthly income.” Commonly referred to as the “means test,” or the “median income test” its’ sole purpose is to force as many people as possible to spend 3-5 years in a Chapter 13 reorganization paying everything they can to creditors. The reality is that the test is based on numbers are often not what it truly costs to live. This is not at all surprising, given that the law was written by the credit industry.
The means test is a 2-step test. The first looks at the gross income and compare it to the “median income” for households of the same size in your state.
Bankruptcy Code Section 707(a)(2)(D) states that: 1) if you are a “disabled veteran” and 2) the indebtedness occurred primarily during a period during which he or she was … on active duty or performing a homeland defense activity …” then that person is not subject to the first step of the means test. Put simply, the individual does not have to pass even the “median income” first step of the means test. It does not matter whether the income is above the median income.
The definition of who is a “disabled veteran” is found it 38 U.S. Code §3741
A disabled veteran is someone who is either:
1) Entitled to compensation under laws administered by the Secretary for a disability rated at 30 percent or more; or
2)Whose discharge or release from active duty was for a disability incurred or aggravated in line of duty.
That is the first step for a disabled veteran.
The second step of this process in Bankruptcy code §707(b)(3) requires that the debts have to have been:
“Incurred primarily during a period when” the individual is on “active duty, or performing a homeland defense activity.”
This is a rather limited exception. Most disabled veterans will not qualify, but a few will.
However, even if you do not fit within this limited exemption on the means test, you will find yourself welcomed at Fraley & Fraley, with discounts. We have discounts for both disabled and military, whether currently serving or a veteran of military service.