Disabled vets have had it tough in enough ways without roadblocks to bankruptcy making it tougher. (Photo: Shutterstock)
In 2005, an overhaul of bankruptcy law shut injured veterans out of protections granted to those receiving disability payments from the Social Security Administration.
Instead, payments to disabled vets from the Department of Veterans Affairs and Department of Defense were classified as disposable income, which meant that they were legally required to use that income to pay off credit card bills, car loans and other consumer debt.
But, according to a Wall Street Journal report, that's about to be rectified with the passage of a bill that "excludes disability payments from the Department of Veterans Affairs and Department of Defense to veterans or their dependent survivors from the classification of disposable income."
Of course, disabled veterans were not the only ones to suffer under the 2005 law changes. Some retirees and the unemployed were also hit with penalties, such as the 25 percent of state and local government employees whose jobs don't entitle them to Social Security retirement benefits, but whose public pension income is considered disposable income if they declare bankruptcy.
In addition, laid-off workers could be vulnerable to having their unemployment benefits classified as disposable income, depending on the opinion of the bankruptcy judge.
Disabled vets have had it tough in enough ways without roadblocks to bankruptcy making it tougher—and the 2005 law overhaul also made it tougher for them even to quality for Chapter 7 bankruptcy protection—both easier than cheaper than other classifications—under federal law.
Military veterans already face such challenges, the report points out, as "higher rates of homelessness, mental health problems and unaffordable debt, including from medical expenses for combat-related injuries."
The report cites a 2017 study from Stanford University that also revealed that "veterans make up a larger portion of people who have filed for bankruptcy protection."
Consumer bankruptcy advocates have been trying to have the law changed for years. When they finally went for help last year to Holly Petraeus, a retired assistant director at the Consumer Financial Protection Bureau and wife of retired Army Gen. David Petraeus, she said in the report that she wasn't aware of how the 2005 law change affected disabled veterans, but that now veterans "will receive the same protections as other Americans."
Presidential candidate Senator Elizabeth Warren, D-MA, has criticized former vice president Joe Biden for supporting that 2005 legislation. The new bill, sponsored by Sen. Tammy Baldwin, D-WI, was passed by the Senate and is expected to be signed by the president.
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Marlene Satter
Marlene Y. Satter has worked in and written about the financial industry for decades.
