Disabled Veterans and the Means Test

by Dan Nunley on August 28, 2009

in Means Test

Disabled VetsThe Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 requires most people to pass the “Means Test” before they will be allowed to file Chapter 7 bankruptcy.

Notice that I said “most” people, not “all” people. There always seems to be exceptions to just about every law. And the complex set of laws known as the U.S. Bankruptcy Code has it’s fair share of exceptions. And most of these exceptions are downright tricky.

Earlier this week, I was contacted by a disabled veteran and his wife who had already talked with at least one other bankruptcy lawyer. This couple was in a bad financial situation and they really wanted to file bankruptcy, but they wanted a second opinion on several things they had been told by the other lawyer. And wouldn’t you just know it – my legal opinion differed dramatically from the other bankruptcy lawyer on some key issues.

One of those key issues was whether or not all disabled veterans are exempt from having to take and pass the Means Test.

Their understanding was that all disabled veterans were excused or exempt from the Means Test. I hated to be the bearer of bad news, but my legal opinion was quite different than what they had been told.

I told them that while there indeed is an exemption from the Means Test for disabled veterans, the definition of “disabled veteran” is narrowly defined for purposes of the Means Test. And unfortunately, my opinion was that even though the husband was in fact a disabled veteran who was drawing VA disability, he did not meet the narrowly defined version of “disabled veteran” under the Means Test. Therefore, they were required to take and pass the Means Test in order to qualify for Chapter 7 bankruptcy.

What exactly is the definition of “disabled veteran” as far as the Means Test is concerned? Well, I’m glad you asked.

For purposes of the Means Test exemption, just being a disabled veteran in and of itself is not enough. Not only must the person be a disabled veteran (as defined in 38 USC 3741(1)), but the disabled veteran’s indebtedness must have occurred primarily during a period in which he/she was on active duty (as defined in 10 USC 101(d)(1)) or while he/she was performing a homeland defense activity (as defined in 32 USC 901(1)).

And based on that narrowly drawn definition, the husband did not qualify for the disabled veteran exemption because while he was indeed a disabled veteran, his debt had not been incurred while on active duty or while performing homeland defense.

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August 28, 2009 at 12:27 pm

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