Can I Keep My VA Disability Pay If I File Bankruptcy in Oklahoma?

by Luke Homen

As a veteran, you’ve already made significant sacrifices for our country. When you’re navigating financial difficulties, the idea of bankruptcy can bring up a lot of questions, especially about the benefits you’ve earned. Many veterans wonder if their VA disability pay is safe if they file for bankruptcy. It’s a valid concern, and the good news is: in Oklahoma, your VA disability benefits are protected.

It’s natural to feel uneasy when facing financial uncertainty, but knowing your rights can provide a real sense of relief.

At Convenient Bankruptcy, we can talk about your options, including whether bankruptcy is right for you. More veterans are filing every day, and we can help you protect your VA disability. If you’re feeling unsure, our Tulsa bankruptcy attorneys want to talk to you!

The Shield of Exemption Laws

When you file for bankruptcy, the court looks at your assets and income to determine how your debts can be resolved. However, not everything you own or receive is fair game for creditors.

State and federal laws include “exemption” rules that protect some of your property and income. This lets you keep what you need to live and work. These rules are key to bankruptcy law, set up to help people get a fresh start without losing everything they need to get back on their feet.

In Oklahoma, these exemptions apply, and your VA disability pay falls squarely into the category of protected income. This means that whether you file for Chapter 7 or Chapter 13 bankruptcy, your VA disability benefits are generally safe from being seized by creditors or used to pay off your debts.

Why VA Disability Pay is Protected

The protection of VA disability benefits in bankruptcy isn’t just a happy accident. It is a deliberate recognition of the purpose of these benefits. They are awarded to you because of your service and the impact of service-connected disabilities on your life. These payments are meant to provide you with a measure of financial stability and support, and the law aims to preserve that purpose even when you are facing financial hardship.

This protection is enshrined in both federal law and Oklahoma’s specific bankruptcy exemption statutes. The Honoring American Veterans in Extreme Need Act of 2019 (HAVEN Act) clarified this further on a federal level, ensuring that veterans’ disability benefits are excluded from the calculation of disposable income for bankruptcy means testing.

This change significantly helps veterans qualify for Chapter 7 bankruptcy or ensures their Chapter 13 repayment plans are more manageable, as their disability income doesn’t disproportionately inflate their “ability to pay” creditors.

Understanding Chapter 7 and Chapter 13

To fully understand how your VA disability pay is protected, it is helpful to know the two most common types of personal bankruptcy: Chapter 7 and Chapter 13.

Chapter 7 Bankruptcy: The “Fresh Start”

Chapter 7 is often called liquidation bankruptcy. It’s best for veterans with limited income and many unsecured debts, like credit card bills or medical expenses. In a Chapter 7, a bankruptcy trustee is appointed to oversee your case. The trustee’s job is to gather your non-exempt assets, sell them, and distribute the proceeds to your creditors.

Because your VA disability pay is exempt, it is generally not considered a “non-exempt asset” and is therefore safe from this process. You would continue to receive your benefits as usual.

To qualify for Chapter 7, you usually need to pass a “means test,” which compares your income to the median income in Oklahoma for a household of your size. The good news is that VA disability benefits are specifically excluded from this calculation, making it easier for many veterans to qualify.

Chapter 13 Bankruptcy: The “Repayment Plan”

Chapter 13 is a reorganization bankruptcy that allows you to repay some or all of your debts over a three-to-five-year period through a structured payment plan. This type of bankruptcy is often chosen by veterans with a steady income who want to keep secured assets like a home or car, or who don’t qualify for Chapter 7.

In Chapter 13, your VA disability benefits are included when calculating your overall income for your repayment plan. However, this doesn’t mean the money is taken from you. Instead, it helps determine your “disposable income.” This is the amount left over after your necessary living expenses are paid. This disposable income then goes toward your repayment plan. The key here is that your VA disability income allows you to fund a feasible repayment plan, but it is not directly seized. You continue to receive and control your benefits.

What About Funds Already in Your Bank Account?

This is a common question. While your future VA disability payments are protected, what happens to the funds that have already been deposited into your bank account?

It’s common to wonder what happens to your VA disability funds once they’re in your bank account. If your VA disability benefits are mixed in with other money, they usually stay protected as long as you can show where they came from. It’s really important to keep good records showing exactly when and where your VA disability funds were deposited and how you’ve used them.

Contact Our Oklahoma Bankruptcy Lawyers

Facing overwhelming debt can feel incredibly isolating. You might be struggling with feelings of shame, frustration, or anxiety about your future. It’s important to remember that you are not the first, nor will you be the last, to face these challenges. Many veterans find themselves in similar positions, and we are here to help.

The bankruptcy process is designed to offer a fresh start, a chance to clear away unmanageable debt and rebuild your financial foundation. It’s a legal tool, and like any tool, it works best when used correctly.

If you are a veteran in Oklahoma dealing with significant debt, and you are concerned about your VA disability pay, take the first step and call Convenient Bankruptcy. We are here to listen, to provide the information you need, and to guide you through the process, making it as straightforward and stress-free as possible.

Call Convenient Bankruptcy in Oklahoma City at 405-639-2099 or fill out our contact form to schedule a consultation.