Debt collectors, garnishment and bankruptcy

Where your VA money is protected

Federal law says VA benefits are generally off limits to creditors. The law has exceptions.

38 U.S.C. 5301(a)(1) says benefits due or to become due under laws VA runs are exempt from creditors' claims. They are not liable to attachment, levy or seizure by any legal or equitable process. That is the base rule behind everything else on this page.

• ExceptionSection 5301(b): the protection does not stop VA from taking back overpayments or illegal payments you owe the United States. See VA debt and overpayments for waiver and offsets. I do not restate that here.
• ExceptionSection 5301(d): VA benefits are not exempt from IRS levy.
• AssignmentSection 5301(a)(3) treats deals where someone gets the right to your compensation or pension, for money, as barred assignments. This includes a joint account they can draw from. Loans are allowed in a narrow case if each repayment is voluntary or by preauthorized transfer. See claim sharks and scams.
• Support ordersFor child support or alimony, the federal withholding law (42 U.S.C. 659) generally leaves out title 38 benefits. The exception is VA compensation paid to a retiree who waived retired pay to get it. Ask a lawyer how your state order applies to you.

Garnishment of a bank account

Treasury's rule, 31 CFR Part 212, protects direct-deposited VA payments when a court order hits your bank.

The rule covers payments from VA, Social Security, Railroad Retirement and OPM. It names VA through 38 U.S.C. 5301(a). When your bank gets a garnishment order, it must look back two months for direct deposits of those benefits. The “lookback period” is the two months before the date of the review.

• ProtectedThe protected amount is the smaller of two numbers: the total benefit payments posted in those two months, or the balance on the day of the review.
• No claim neededThe rule says you do not have to assert an exemption to keep using the protected amount. The bank may not freeze it or charge a garnishment fee against it.
• Above that amountMoney over the protected amount can be frozen under the bank's usual process.
• Not coveredCFPB says money from a paper check that you deposit yourself does not get this automatic protection. Your whole balance could be frozen.
• Review is onceThe bank does the review once per order. A new or different order starts a new review.

You should get a notice that explains how to claim exemptions. CFPB says to tell the court, the bank and the other side in writing right away, and to get legal help. Mixing benefits with other money in one account makes this harder to sort out.

What the HAVEN Act does

The HAVEN Act changes how bankruptcy counts your income. It does not cancel a single debt.

The Honoring American Veterans in Extreme Need Act of 2019 is Public Law 116-52, approved August 23, 2019. It rewrote the definition of “current monthly income” in 11 U.S.C. 101(10A). That number feeds the means test and disposable income calculations. The Act added an exclusion for 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.

• DoesTakes those payments out of current monthly income, so they do not push you over the Chapter 7 means test line on their own.
• LimitRetired pay under chapter 61 of title 10 (disability retirement) is excluded only to the extent it exceeds what you would get if retired under another part of title 10.
• Does notMake debts disappear. It only changes an income number used in the tests.
• Does notLet you hide anything. The U.S. Courts say you can be denied a discharge or have the case dismissed if you do not disclose all assets and debts. List every benefit, account and asset.
• CheckThe Justice Department's trustee office says the Act does not explicitly change the “totality of the circumstances” test in section 707(b)(3). A judge can still look at your whole situation.

Bankruptcy needs a bankruptcy attorney

The federal courts themselves warn that court staff cannot give you legal advice.

The U.S. Courts page for people considering filing without a lawyer lists the traps: eligibility rules for each chapter, limits after an earlier dismissed case, no new discharge if you had one recently, and complex rules about which debts survive. It also says you must complete credit counseling from an approved agency within 180 days before filing.

Questions to ask a bankruptcy attorney:

1. Which chapter fits me, and why?
2. How does my VA compensation, retired pay and any other income count under the means test and the HAVEN Act?
3. Which of my assets and accounts are exempt in my state, and what could I lose?
4. Will my VA debt, student loans, taxes or support be wiped out, or do they survive?
5. What happens to my car, home and any co-signer?
6. What are the full costs, and what else could I try instead?

Veterans can often find free help. See free legal help for veterans.

If you are sued while in service

The SCRA protects people in military service from default judgments. It covers certain people only.

Under 50 U.S.C. 3931, if a defendant does not show up in court, the plaintiff must file an affidavit saying whether the defendant is in military service. If the defendant appears to be, the court may not enter judgment until it appoints an attorney. If the case goes forward and the defendant is in service, the court must grant a stay of at least 90 days on application when a defense may need the servicemember there, or counsel cannot reach them. A servicemember who learns of the case can ask for a stay too.

• After serviceIf a default judgment was entered during service or within 60 days after release, the court must reopen it on a showing that service affected your defense and you have a legal defense. You must apply within 90 days after release.
• Who“Military service” means active duty and certain related service (for example, National Guard under a federal call for more than 30 days, and active service of commissioned Public Health Service and NOAA officers). Most veterans are not covered once they are out, other than that 90-day reopening window.

For interest caps, leases, repossession, foreclosure and eviction, see my SCRA page and the Military Lending Act page.

Debt collectors: the short version

A collector has to tell you what the debt is, and you have a window to dispute it.

• Validation noticeCFPB says it must show the collector, the creditor, an itemized balance, how to reply, and an end date for the dispute period.
• 30 daysCFPB: you have 30 days to dispute the debt in writing. If you send a written request in that period, the collector must stop collecting the disputed amount until it responds. Missing the window can limit your rights.
• Sued?If you get a summons, read the papers and the deadline on them. Do not ignore it, because that can lead to a default judgment. Call legal aid.
• Credit report errorsCFPB says to dispute in writing with the credit reporting company, and also with the company that supplied the information. The furnisher generally must respond within 30 days of receiving the dispute.

A letter telling a collector that your income is VA benefits can help. CFPB has a sample letter on its federal benefits page.

Where to take a problem

• CFPBComplaints about debt collection, credit reports, loans and accounts. The company generally responds within 15 days. Phone 855-411-2372. File online at consumerfinance.gov/complaint. Try the company first.
• State attorney generalCFPB says you can report a collector's bad conduct to your state's attorney general and to the FTC.
• Legal aidCFPB points to findlegalhelp.org for local legal aid. See free legal help for veterans.
• VA debtDebts VA says you owe are a different track. See VA debt and overpayments.
• Court deadlinesSee deadlines quick reference.

Be careful with anyone who promises to erase debt for a fee. See claim sharks and scams.

What I could not verify

• How courts treat VA money after it sits in your account for months, or is mixed with other money. I did not find a federal source that settles it. State rules differ.
• Your state's exemption amounts and the deadline to claim one. They are set by state law and the notice you get.
• Current Chapter 7 means test income limits. They change, and I did not state any figure.
• Whether your particular benefit is covered by the HAVEN exclusion. I read the statute text, not your file.
• Whether a state court will garnish for support in your case. I confirmed only the federal withholding rule.
• The exact scope of SCRA coverage for reservists. I summarized only part of the definition.