While under Chapter 13 repayment, are VA disability benefits required to be listed as income?

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While under Chapter 13 repayment, are VA disability benefits required to be listed as income?

My parents filed for Chapter 13 bankruptcy and are still under the required arranged payment agreement. My father (a disabled Vietnam veteran) has just received a lump sum of retroactive disability benefits from the VA and now will be receiving a certain amount of benefit each month. Does the lump sum benefit and recurring monthly benefit have to be claimed as income or is it exempt? How will it effect their monthly payment? How much of the lump sump would they lose?

Asked on August 18, 2011 Michigan

Answers:

M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 12 years ago | Contributor

In Chapter 13 bankruptcy, you spend 3 or 5 years repaying your creditors from your disposable income before your remaining debts are discharged. And disability paymentss count as disposable income.

However, including SSD income may be a plus. The bankruptcy courtcan reject your filing if you don't have enough money to make a payment plan practical; so the more income you have, the better your chance to qualify. Also, SSD doesn't necessarily mean higher payments; you can get a longer payment plan (if your income is more than your state's median, the plan runs 5 years; if less than the median then it runs 3 years).

As to the lump sum payment, whether or not they can keep it depends on their state’s exemption laws and the practice and procedure in their local bankruptcy court.

At this point they should consult directly with a bankruptcy attorney in their area.

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