Four bankruptcy courts have now held that veterans’ disability benefits are included in calculating whether a chapter 13 debtor has dedicated all disposable income to the payment of creditors’ claims.
The most recent decision on this matter, on Jan. 25, is by Chief Bankruptcy Judge Susan V. Kelley of Milwaukee. The case turned on Section 1325(b)(1)(B), which defines “disposable income” as “current monthly income” less expenses for support. “Current monthly income” is defined in Section 101(10A) as “average monthly income from all sources,” with a few exceptions such as Social Security payments.
Judge Kelley denied confirmation under Section 1325(b)(1)(B) because the debtors did not include veterans’ disability benefits in the calculation of disposable income. Primarily, the debtors argued that veterans’ payments should not be included because they are exempt from attachment by creditors under 38 U.S.C. § 5301(a)(1).
Before the 2005 amendments, some courts had held that exempt property was excluded from the calculation. After the amendments, Judge Kelley said, “courts have concluded there can be no debate” that “disposable income includes exempt assets.”
Judge Kelley therefore joined three other bankruptcy courts that all held in 2008 that veterans’ benefits are included in the calculation.
The debtors also contended it was unfair for them to pay creditors with veterans’ benefits because Social Security benefits are excluded from the calculation by virtue of Section 101(10A).
Addressing the argument, Judge Kelley said that voluntarily seeking chapter 13 relief “is different than the involuntary legal procedures” prohibited by Section 5301. To give veterans’ benefits equal stature with Social Security “is a job for Congress, not the Court,” she said.