Two senators just introduced a bill designed to shield veterans’ disability benefits from debt collectors.

When a disabled vet declares bankruptcy currently, the law allows debtors to count a veteran’s disability benefits as disposable income, allowing them to seize the benefits.

Yet Social Security disability benefits are exempted by law from being lumped into a person’s disposable income in bankruptcy filings, and disability benefits in any form aren’t taxable and therefore generally not considered disposable income.

The Honoring American Veterans in Extreme Need (HAVEN) Act seeks to create the same immunity in bankruptcy cases for benefits provided by the VA and Department of Defense to disabled veterans and their surviving spouses.

Sen. Tammy Baldwin, D-Wis., and Sen. John Cornyn, R-Texas, introduced the bill, which has already been endorsed by 10 Republican and 10 Democratic senators. It has also earned the support of organizations like the American Legion, Disabled Veterans of America and the American Bankruptcy Institute, among others.

“Right now, veterans and their families are forced to dip into their disability-related benefits to pay off bankruptcy creditors,” said Baldwin during an unveiling event for HAVEN in her Senate office. “And that’s not right. This reform will protect veterans’ disability benefits when they fall on hard times.”

Supporters of the legislation say it’s unfair that veterans may be forced to give up their disability benefits when declaring bankruptcy, while the general population receiving similar benefits through Social Security does not.

“The effect is to shove veterans out of the protections that every other disabled American gets,” said Holly Petraeus, a HAVEN supporter and former assistant director of the Consumer Financial Protection Bureau. “We knew that was not right and were sure that was not intended with the original legislation, but that was the effect that it had.”

Matthew Shuman, the American Legion’s national legislative director, felt similarly.

“So often we find that veterans and service members and their families are exempted because they do great things,” he said. “It’s not often that we find the other way around.”

Baldwin and others involved with HAVEN say the bill could also help veterans’ mental-health issues by easing their financial burdens. John Thompson, a veteran and bankruptcy lawyer with the ABI, brought up “startling statistics” surrounding veteran suicides.

“We know that one of the single greatest contributing factors to that is financial distress,” he said. “And this is going to go a long way to easing that financial distress for many American veterans.”

A few of the bill’s supporters made the point that bankruptcy isn’t inherently a bad thing and, in fact, can allow a veteran to start over financially.

Jay Bender, an Alabama lawyer and ABI member, said that the fear of losing their disability benefits to creditors might deter veterans from filing for bankruptcy.

“There’s benefits to going through bankruptcy, to get the fresh start,” he said. “We should remove the impediment that currently exists that restricts this access for disabled vets.”

Baldwin agreed, adding that fewer barriers for veterans to file for bankruptcy creates more opportunities for them to turn their lives around and resume their contributions to the economy.

"When somebody has financial woes that are so significant that they have to declare bankruptcy, if given a second chance they have a much more promising path to becoming taxpayers again,” she said. “If not given that chance, people are not necessarily going to resume a productive job. We like to create new taxpayers.”

Shane Liermann, Disabled American Veterans’ assistant national legislative director, highlighted what’s truly at stake for veterans who face the prospect of having their disability benefits snatched away by debtors in a bankruptcy scenario.

“Disability compensation for many of our veterans is the difference between being able to provide the necessities for their family and not,” he said. “The notion that disability compensation can be considered disposable income is outrageous.”

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