Bankruptcy and Military Veterans with Disability
A military veteran who has been awarded a military disability is given special consideration under both Florida and bankruptcy law. Under Florida law, FS § 222.21, military disability payments are totally exempt from the claims of creditors. This means that your military disability benefits can not be garnished or seized by a creditor you owe money to. If you receive military disability payments you should deposit these payments into a bank account without co-mingling that money with other non-exempt sources of income, such as a spouses earnings. The reason is that it becomes impossible to separate the exempt disability payment from the other income. If you cannot prove that any specific portion of the money in the account is from your disability payments the entire money in the account could be determined to be non-exempt – and reachable to a creditor for garnishment or seizure. For the same reason you should not put your disability payments into a joint account with a spouse of significant other or you again risk losing the exemption of the disability money in the account. It is important for you to keep your disability payments exempt so that it will also be available to you for your needs.
When filing for bankruptcy a military veteran who has been awarded a military disability of 30% or more might receive a benefit not given to someone with no or less than a 30% military disability. Some definitions apply to quality under the bankruptcy laws. Under Title 38, U.S.C.A. § 3741, a disabled veteran is defined as a veteran who is entitled to compensation for a disability rated at 30% or more, or was discharged or released from active duty for a disability incurred or aggravated in the line of duty. “Active duty” is defined by 10 U.S.C.A. §101 as full-time duty in the active military service of the United States. Such term includes full-time training duty, annual training duty, and attendance, while in the active military service, at a school designated as a service school by law or by the Secretary of the military department concerned. Such term does not include full-time National Guard duty.
“Homeland Defense Activity” is defined by 32 U.S.C.A. §901 as an activity undertaken for the military protection of the territory or domestic population of the United States, or of infrastructure or other assets of the United States determined by the Secretary of Defense as being critical to national security, from a threat or aggression against the United States.”
When filing for bankruptcy every person is required to have their last 6 months of averaged income used in a “means test”. The means test is used to determine who can file a chapter 7 case or will be required to file a chapter 13 case instead. A veteran who has been awarded a 30% or more disability will be allowed to file a chapter 7 case regardless of whether the means test would have required that person to file a chapter 13 case but for being a disabled veteran. The test for determining whether you qualify for this exception to the means test is (a) are you a disabled veteran with a 30% or more disability and (b) did you obtain your debt while on active duty or performing homeland defense activity. If a veteran meets these two requirements, their bankruptcy case cannot be dismissed or converted to a Chapter 13 bankruptcy repayment plan, and shall remain a Chapter 7 bankruptcy debt elimination case.
Most people want to file under chapter 7 of the bankruptcy code and not under chapter 13. This is because chapter 7 is simpler. The debtor receives a discharge of the debtor’s debt in about 4-5 months and is not required to make payments to the bankruptcy court for anywhere up to 60 months, as would be required in a chapter 13. Being able to file a chapter 7 bankruptcy case is a big advantage. Military veterans with service awarded disability should know this.