Disabled Veteran Means Test Exemption

Qualifying for bankruptcy requires that certain thresholds are met with respect to a person’s gross income earned in the recent past and specifically within the six-month period immediately preceding the month in which the case is filed.  The test for determining whether a particular individual qualifies is referred to as the means test, which compares your income to the median income for a household of your size as published regularly by the Department of Justice.  Many attorneys talk to a client, learn that the client’s income is over the median income threshold, and then tell the client that he or she does not qualify to file a Chapter 7 straight bankruptcy to eliminate their debts but must repay debts through a court-ordered Chapter 13 repayment plan.  But this is not always accurate. I have lost count of how many clients I have spoken to who were given this advice when it was not true. This primarily occurs with disabled veterans who are exempt from the means test.

 

Exemptions exist to the bankruptcy means test in which case the test does not even apply and you qualify to file for Chapter 7 even if your income is well above the median income threshold.  One important exception that frequently arises is the Disabled Veteran exemption.  Many military veterans qualify for this exemption, including vets who are receiving disability payments as a result of psychological trauma sustained during military service.

Active Duty or Homeland Defense Activity

In order to quality for the Disabled Veteran exemption to the means test, two requirements must be met: (1) your debt must be incurred during a period that you were serving on active duty in the military or homeland defense activity; and (2) you have received a determination that you are at least 30% disabled as a result of a disability incurred or aggravated in line of duty.

Psychological Trauma

The most common cases where clients use the Disabled Veteran exemption are cases of psychological trauma.  Many veterans who have psychological trauma that was incurred or aggravated in the line of duty still go on to leading productive lives and earning significant income.  Because of their income level, they are unable to qualify under the means test.   However, as long as they have received a disability rating of 30% or greater, then the means test does not apply to their case.   In my experience, most clients who have sustained psychological trauma during service have a disability rating or at least 30%.  In fact, often their disability rating is much higher than 30%.

Physically Disability

A physical disability also qualifies for the Disabled Veteran exemption, but in practice this exemption is rarely used.  The reason: a client with a physical disability may not be able to work, hence their income will not be above the median family income for a household of their size.  Since their income does not exceed the means test figures, they pass the means test and do not need to use an exemption to the means test.

Additional 540 Days for Reservists

If you were a Reservist in the Armed Forces or National Guard and were called to duty at any time after September 11, 2001, your debt can be incurred either during your period of active duty or during the 540 days after you are released from active duty and you still qualify for the Disabled Veteran exemption.  The law gives you an additional 540 days because you had less preparation and planning time before being called to duty.

This entry was posted in Chapter 7, Qualify for Bankruptcy.


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