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Sep 4th, 2019

New CMI Exclusion- Haven Act Becomes Law

By Shirley Palumbo, Greenspoon Marder LLP

This has been a busy session in Washington with respect to bankruptcy issues. Foremost amongst those changes is H.R. 2938, the Honoring American Veterans in Extreme Need Act of 2019 (“HAVEN Act”), which was signed into law by the President on August 23, 2019. The law amends Title 11 U.S.C. § 101(10B)(ii) to exclude certain benefits paid by the Department of Veterans Affairs and the Department of Defense when calculating a consumer Chapter 7 or Chapter 13 current monthly income (“CMI”). The Act was introduced and signed fairly quickly. After being introduced to the House on May 23, 2019, it passed without objection or changes to the text through the House and the Senate and became Public Law No: 116­52 by August 26, 2019. The law was co-sponsored in Florida by Rep. Steube, W. Gregory, Rep. Lawson, Al, Jr. and Rep. Wilson, Frederica S. This post provides an overview of the new law.

What is it?  The current monthly income (“CMI”), also known as the “Means test,” was essentially enacted under BACPA in 2005 in an attempt to control the perceived fraud and abusive bankruptcy filings by “means” of an objective standard which re-positions debtors with a minimum ability to repay debts from Chapter 7 to Chapter 13 based on all income earned over six-month period preceding petition date.  11 U.S.C.A. § 101(10A). There are various items excluded from the “current monthly income,” like social security benefits. These are not considered income for purposes of calculating CMI.

The new law treats VA benefits as excludable when calculating Chapter 13 debtor's current monthly income (CMI). The verbatim language of this new exclusion law states that “any monthly compensation, pension, pay, annuity, or allowance paid under title 10, 37, or 38 in connection with a disability, combat-related injury or disability, or death of a member of the uniformed services, except that any retired pay excluded under this subclause shall include retired pay paid under chapter 61 of title 10 only to the extent that such retired pay exceeds the amount of retired pay to which the debtor would otherwise be entitled if retired under any provision of title 10 other than chapter 61 of that title.” This language passed both the House and the Senate without any amendments made to the text.

Who is protected?  The law protects a consumer veteran who served as a military personnel and was an active military, naval, or in the air service. (Title 10 of the United States Code).

What is protected?  Benefits under Title 38 of the United States Code include compensation for service, connected with disability or death; dependency and indemnity compensation for service-connected deaths; pension for non-service-connected disability or death or for service; benefits for children of Vietnam veterans and certain other veterans; insurance benefits for homeless veterans; specially adapted housing for disabled veterans and burial benefits. As a result, VA pensions, compensation and disability benefits provided to the consumer veteran or dependents are now out of reach of creditors in consumer bankruptcy cases. In a chapter 13 plan of reorganization the plan is confirmable without increasing the dividend to unsecured creditors.

When is it effective? August 23, 2019.

The Act, full text of which is available here.

As a daughter of a veteran Captain of the Korean War, being a sister of a Vietnam Green Beret and a mother of an Army Intelligence Major it is a great pleasure to see Congress, the judiciary and my colleagues in the bankruptcy forum place a high priority on allowing veterans to retain their benefits, albeit resulting in lower distribution to creditors. The decision to exempt VA benefits from the distribution to creditors and from inclusion in the definition of CMI regardless of the consumer chapter was supported by the American Bankruptcy Institute, American College of Bankruptcy, The American Legion, Veterans of Foreign Wars, Disabled American Veterans, Paralyzed Veterans of America, Iraq and Afghanistan Veterans of America, Wounded Warrior Project, Association of the United States Army, Association of the United States Navy, Retired Enlisted Association, Society of Military Widows, Veterans for Common Sense, and the U.S Army Warrant Officers Association. To all, huge kudos.