How Veteran Benefits are Treated in Bankruptcy in Illinois: Chapter 7 and Chapter 13

Veterans benefits may be treated differently than other income in bankruptcy, depending upon what chapter is being filed and whether or not the veteran is disabled.  The payment of veteran benefits can include disability pay, living expenses and healthcare related costs.  All of these are considered income. 

Income is important in a chapter 7 bankruptcy as one of the determining factors in eligibility to file. Generally, the lower the income, the greater the chances that someone can file a successful chapter 7 case. In a chapter 13 bankruptcy, typically reserved for those with higher income who still struggle, the amount of income will determine how much money is repaid to creditors. 

Our bankruptcy laws count veterans benefits as income when determining eligibility for filing for chapter 7 bankruptcy, but some veterans may be exempt from what is called the “means test”.  To understand the means test, we go back to income. Typically, in order to qualify for chapter 7, you need to show that your income is below Illinois’ (or your state's) median income. If your income is higher than that, you are not automatically disqualified from a chapter 7, but you just need to jump through an additional hoop- which is the means test. The means test compares your income to various fictitious expenses, or ‘allowable expenses’, which is meant as a measure of one’s ability to repay a portion of unsecured debt. Veterans who are disabled may be exempt from having to take the means test in order to qualify for chapter 7 filing.  Exemption from the means test will depend upon whether or not the veteran’s debts were primarily incurred while engaged in homeland defense activities or while on active duty. The disability rating must be at least 30%, or if the veteran was discharged due to the disability having been aggravated or incurred while in the line of duty.

Understanding which chapter of bankruptcy you may qualify for is only the beginning of understanding a complex system, which is complicated even more for veterans.  If you are receiving veteran benefits and aren’t sure if you should be filing for bankruptcy, let’s talk. I’d be honored to take a look at your situation and be of service to you.  Give us a call now at 630-250-8813. 

Carol O'Connor Cadiz
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Attorney & Owner at O'Connor Cadiz Law: Injury & Accidents, Disability Insurance.