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VA disability compensation provides crucial financial support for veterans who have service-connected disabilities. Understanding the protections around these benefits is essential for veterans facing debt collection. If you served our country and have VA disability benefits, firstly: thank you for your service. Secondly, let’s take a closer look at how these benefits can and cannot be garnished, along with strategies for managing debt.
Understanding VA disability benefits protection
VA disability compensation is generally protected from garnishment by creditors. This protection stems from federal law, specifically 38 U.S.C. § 5301, which states that VA benefits are “exempt from taxation, shall be exempt from the claim of creditors, and shall not be liable to attachment, levy, or seizure by or under any legal or equitable process whatever, either before or after receipt by the beneficiary.”
This strong legal protection recognizes the special purpose of these benefits: compensating veterans for disabilities incurred during their service to our country.
When VA disability CAN be garnished
Despite these protections, there are specific circumstances where VA disability benefits can be garnished:
- Child support and alimony
If you owe child support or alimony, your VA disability benefits can be garnished. Under the Child Support Enforcement Act, VA benefits may be garnished to fulfill court-ordered family support obligations. The Department of Veterans Affairs will withhold the required amount from your benefits and direct it to the appropriate recipient.
The garnishment for child support is typically limited to:
- 50% of your benefits if you’re supporting another dependent.
- 60% if you’re not supporting another dependent.
- An additional 5% may be added if you’re more than 12 weeks in arrears.
- Federal debts
VA disability compensation can be garnished for certain federal debts, including:
- Federal taxes: The IRS can collect unpaid federal taxes from your VA disability benefits.
- Federal student loans: Defaulted federal student loans can result in garnishment of your VA benefits.
- Other federal debts: This includes overpayments of VA benefits or other federal program benefits.
The Treasury Offset Program allows the government to withhold up to 15% of your monthly VA disability payment for federal debts.
When VA disability CANNOT be garnished
Your VA disability compensation is protected from garnishment for:
- Private debts (credit cards, personal loans, medical bills).
- Civil judgments.
- Collection agencies.
- Private student loans.
- Most state and local taxes.
- Bankruptcy proceedings.
Even if a creditor obtains a court judgment against you, they cannot garnish your VA disability benefits to satisfy these types of debts.
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Military retirement pay vs. VA disability
It’s important to understand the distinction between military retirement pay and VA disability compensation:
- Military retirement pay is considered income and can be garnished for most types of debt.
- VA disability compensation has the special protections outlined above.
If you receive both types of payments, creditors may be able to garnish your retirement pay while your VA disability remains protected.
Protection of funds after deposit
A key consideration is what happens to the protection once the funds are deposited into your bank account. Courts have generally held that VA disability benefits remain protected even after deposit if they are identifiable as VA benefits.
However, this protection becomes less clear when:
- VA benefits are commingled with other funds.
- A significant time has passed since deposit.
- The funds have been converted into other assets.
To maximize protection, consider:
- Using a separate bank account solely for VA disability deposits.
- Keeping records that clearly identify the source of funds.
- Being aware that once VA benefits are used to purchase assets, those assets may not have the same protections.
Special considerations for concurrent receipt
Veterans receiving Concurrent Retirement and Disability Pay (CRDP) or Combat-Related Special Compensation (CRSC) should be aware that:
- The portion of your payment classified as disability remains protected.
- The retirement portion may be subject to garnishment.
- It’s important to understand how your specific payments are classified.
Managing debt while protecting VA benefits
If you’re struggling with debt while receiving VA disability:
- Seek financial counseling: The VA offers financial counseling services for veterans.
- Consider bankruptcy: While VA benefits are exempt from bankruptcy proceedings, filing bankruptcy may help discharge other debts.
- Negotiate with creditors: Many creditors are willing to work with veterans on payment plans.
- Contact your VA regional office: They can provide guidance specific to your situation.
- Consult with a veterans benefits attorney: Professional advice can help you navigate complex financial and legal issues.
The bottom line
VA disability benefits provide essential financial support for veterans with service-connected disabilities and are strongly protected from most forms of garnishment. However, these protections have important exceptions for child support, alimony, and federal debts. Veterans facing financial challenges should understand these distinctions and seek appropriate guidance to maintain their financial well-being while addressing legitimate obligations.
Remember that this article provides general information and should not be considered legal advice. For guidance specific to your situation, consult with a qualified veterans benefits attorney or financial advisor.
There’s always JG Wentworth…
If you have $10,000 or more in unsecured debt there’s a good chance you’ll qualify for the JG Wentworth Debt Relief Program.* Some of our program perks include:
- One monthly program payment
- We negotiate on your behalf
- Average debt resolution in as little as 24-60 months
- We only get paid when we settle your debt
If you think you qualify for our program, give us a call today so we can go over the best options for your specific financial needs. Why go it alone when you can have a dedicated team on your side?
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* Program length varies depending on individual situation. Programs are between 24 and 60 months in length. Clients who are able to stay with the program and get all their debt settled realize approximate savings of 43% before our 25% program fee. This is a Debt resolution program provided by JGW Debt Settlement, LLC (“JGW” of “Us”)). JGW offers this program in the following states: AL, AK, AZ, AR, CA, CO, FL, ID, IN, IA, KY, LA, MD, MA, MI, MS, MO, MT, NE, NM, NV, NY, NC, OK, PA, SD, TN, TX, UT, VA, DC, and WI. If a consumer residing in CT, GA, HI, IL, KS, ME, NH, NJ, OH, RI, SC and VT contacts Us we may connect them with a law firm that provides debt resolution services in their state. JGW is licensed/registered to provide debt resolution services in states where licensing/registration is required.
Debt resolution program results will vary by individual situation. As such, debt resolution services are not appropriate for everyone. Not all debts are eligible for enrollment. Not all individuals who enroll complete our program for various reasons, including their ability to save sufficient funds. Savings resulting from successful negotiations may result in tax consequences, please consult with a tax professional regarding these consequences. The use of the debt settlement services and the failure to make payments to creditors: (1) Will likely adversely affect your creditworthiness (credit rating/credit score) and make it harder to obtain credit; (2) May result in your being subject to collections or being sued by creditors or debt collectors; and (3) May increase the amount of money you owe due to the accrual of fees and interest by creditors or debt collectors. Failure to pay your monthly bills in a timely manner will result in increased balances and will harm your credit rating. Not all creditors will agree to reduce principal balance, and they may pursue collection, including lawsuits. JGW’s fees are calculated based on a percentage of the debt enrolled in the program. Read and understand the program agreement prior to enrollment.
This information is provided for educational and informational purposes only. Such information or materials do not constitute and are not intended to provide legal, accounting, or tax advice and should not be relied on in that respect. We suggest that you consult an attorney, accountant, and/or financial advisor to answer any financial or legal questions.