Receiving money does not automatically constitute as income, at least not in the eyes of the Internal Revenue Service or a divorce judge. Military disability payments fall into this category. Your check from the Department of Veterans Affairs may count as income when you pay child support, but not when you pay your taxes. In bankruptcy, the disability payments may or may not be applicable to income as it depends on the circumstance.
When you fill out your 1040 you don't include disability benefits in your taxable income. Nontaxable VA benefits include disability payments and pensions, grants for wheelchair-accessible homes and grants for vehicles for veterans who are blind or without the use of their limbs. Payments received through the VA's Compensated Work Therapy program was once taxable income; in 2007, however, the IRS changed federal policy making it nontaxable.
The law treats disability payments separately from retirement income. If you and your spouse divorce, your spouse may have a right to some of your retirement pay but he can't technically claim any of your disability. In practice, however, some courts disagree and divide disability payments. If a judge orders you to pay child support, your disability payments will count as income for figuring how much you should pay, and it's possible that the courts can garnish your benefits if you fall behind in your payments.
In Chapter 13 bankruptcy, you spend three or five years paying your creditors out of your disposable income, after which most of your remaining debts will be discharged. To figure disposable income, you take your total income and subtract living expenses, business expenses and charitable donations; everything else goes to your creditors. If you receive disability payments, the bankruptcy court will include that when calculating your total income; the only source of income that Chapter 13 doesn't include is child support payments.
To file Chapter 7, your average income for the six months before you file must be under your state's median. If you qualify, a court trustee will use your assets and income to pay off your creditor, after which you can discharge most of the remaining debts. If your disability rating is 30 percent or more, and you acquired more than half the debt during active military or homeland defense service, you can file even if your disability payments and your other income put you above the median.
A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.