'Destructive' debt default threatens military payroll and defense programs (2023)

FAQs

What happens if government defaults on its debt? ›

“It would likely push the economy and transportation markets into a real recession (not a maybe recession like we have now) and would hurt the ability of trucking businesses to borrow money,” Meil says. “And no doubt, it would bring about higher interest rates.

In the event of a default the US government would face a severe fiscal crisis, leading to a significant reduction in available funds for all government programs, including veterans' benefits. This would result in delays to benefit payments until alternate funding has been sourced.

New analysis shows that millions of veterans may experience delays in receiving their pensions, disability compensation, educational allowances, or health care if Congress doesn't raise, suspend, or eliminate the debt ceiling.

Potential repercussions of reaching the ceiling include a downgrade by credit rating agencies, increased borrowing costs for businesses and homeowners alike, and a dropoff in consumer confidence that could shock the United States' financial market and tip its economy—and the world's—into immediate recession.

If the U.S. defaults on its debt, it will be unable to pay its bills, rocking global financial markets and resulting in what Yellen predicts would be "an economic and financial catastrophe." This news has investors understandably worried about protecting their money should the worst occur.

Investors in Japan and China hold significant shares of U.S. public debt. Together, as of September 2022, they accounted for nearly $2 trillion, or about 8 percent of DHBP. While China's holdings of U.S. debt have declined over the past decade, Japan has slightly increased their purchases of U.S. Treasury securities.

Military members who repeatedly fail to make payments or honor their debts can receive various punishments, including being discharged. The maximum punishment is a Bad-conduct discharge, forfeiture of all pay and allowances, and confinement for 6 months.

Legal Authority for Garnishing VA Benefits. There is no statutory prohibition against the garnishment of military retired pay (MRP) when the Veteran is in receipt of Department of Veterans Affairs (VA) disability compensation. make a payment in compliance with the garnishment order for certain categories of payees.

Members of the military dealing with credit card debt face an extra level of penalties if that debt becomes delinquent or excessive: They could lose their security clearance, be denied promotions and, in extreme circumstances, face dismissal.

Having a debt in the military can come with a variety of consequences. Involuntary repayment options are available to the DoD, including wage garnishments that allow them to collect what's owed. Additionally, certain funds received from the federal government are potentially subject to seizure until the debt is repaid.

What can stop military retirement pay? ›

Military retired pay stops upon death of the retiree! The Survivor Benefit Plan (SBP) allows a retiree to ensure, after death, a continuous lifetime annuity for their dependents.

Are military or civil service retirees subject to garnishment? No. Retired military members' pay is exempt from garnishment for commercial debts.

On January 19, 2023, the United States hit its debt ceiling, leading to a debt-ceiling crisis, part of an ongoing political debate within Congress about federal government spending and the national debt that the U.S. government accrues.

And if a government default were to last much longer — well into the summer — the consequences would be far more dire, Zandi and his colleagues found in their analysis: U.S. economic growth would sink, 7.8 million American jobs would vanish, borrowing rates would jump, the unemployment rate would soar from the current ...

Failing to increase the debt limit would have catastrophic economic consequences. It would cause the government to default on its legal obligations – an unprecedented event in American history.

Complete rehabilitation by making on-time payments after the payment suspension ends. You need to make nine on-time monthly payments (or payment credits) in order to successfully complete loan rehabilitation. During the COVID-19 emergency relief period, paused payments count toward loan rehabilitation.

So who does bear the burden of this debt? Buchanan's correct answer is this: the taxpayers who repay the debt. These taxpayers, in order to transfer resources to the creditors, are compelled to reduce their consumption when payments on government bonds come due.

Japan and China have been the largest foreign holders of US debt for the last two decades. Japan and China held almost 50% of all foreign-owned US debt between 2004 and 2006. However, this has declined over time, and as of 2022 they controlled approximately 25% of foreign-owned debt.

States and local governments hold 5 percent of the debt. Foreign governments who have purchased U.S. treasuries include China, Japan, Brazil, Ireland, the U.K. and others.

Is there a country with no debt? ›

A low level of debt shows less reliance on foreign borrowings. The best example can be taken from Hong Kong (it is a one of the debt free countries), whose economy has the least debt to GDP ratio. It is an almost debt free country. It has a well-regulated financial system and large foreign reserves.

Debt-to-income ratio targets

Generally speaking, a good debt-to-income ratio is anything less than or equal to 36%. Meanwhile, any ratio above 43% is considered too high.

Military Pay Claims at the U.S. Court of Federal Claims

Federal law allows you to sue the U.S. government for payment of money as a result of the wrongful discharge, improper retirement, denial of promotion, service-related disability, and incorrect military records under some circumstances.

A debt may be for an overpayment of retired pay, an overpayment of active duty pay and allowances, or other indebtedness arising from service on active duty, an overpayment from another department or agency of the Federal Government, unpaid government hospital bills, unpaid rent due military installations, IRS tax ...

If you are struggling with debt and debt collectors, Farmer & Morris Law, PLLC can help. As soon as you use the 11-word phrase “please cease and desist all calls and contact with me immediately” to stop the harassment, call us for a free consultation about what you can do to resolve your debt problems for good.

Bank accounts solely for government benefits

Federal law ensures that creditors cannot touch certain federal benefits, such as Social Security funds and veterans' benefits. If you're receiving these benefits, they would not be subject to garnishment.

VA disability compensation payments are reduced if a Veteran is convicted of a felony and imprisoned for more than 60 days. Veterans rated 20 percent or more are limited to the 10 percent disability rate. For a Veteran whose disability rating is 10 percent, the payment is reduced by one-half.

Generally, lenders in the financial world aren't comfortable with a debt-to-income ratio higher than 43%, so that 50% ratio likely would be a red flag for a candidate applying for a security clearance.

You will be able to apply for a military loan, even if you have bad credit. Active duty military members seeking a personal loan, as well as those with any other military affiliation (whether a reservist, career-retired, a military spouse, or military dependent) are ALL able to apply for a loan up to $40,000.

Top Secret: Individuals with this clearance have access to information or material that could be expected to cause exceptionally grave damage to national security if it was released without authorization. This level needs to be reinvestigated every five years.

What is the statute of limitations for military pay? ›

STATUTE OF LIMITATIONS: In this case the Court explained that military pay claims must be filed within 6 years from their accrual. When a claim accrues is a question of law that your experienced military counsel can advise you on.

Although the unpaid debt will go on your credit report and cause a negative impact to your score, the good news is that it won't last forever. Debt after 7 years, unpaid credit card debt falls off of credit reports. The debt doesn't vanish completely, but it'll no longer impact your credit score.

To acquire the full amount, you need to maximize your working life and begin collecting your check until age 70. Another way to maximize your check is by asking for a raise every two or three years. Moving companies throughout your career is another way to prove your worth, and generate more money.

Currently, over 50,000 medically retired veterans are forbidden from receiving their full retirement pay and disability compensation. The Major Richard Star Act would repeal this unfair offset, allowing these disabled Veterans to receive both their retirement pay and their disability compensation.

What is the retirement pay for an E7 with 20 years? As of 2022 the pay calculation projection an E7 retiring with exactly 20 years of service would receive $27,827 per year. It's important to note the present value of almost $800,000 for a 40 year old receiving this pension indefinitely.

It's not just your basic pay that can be withheld, garnishments can also include almost all of your "pay" such as special pay, incentive pay, etc. Your allowances such as Basic Allowance for Housing and Basic Allowance for Subsistence cannot be garnished.

Benefits That Cannot Be Garnished

Supplemental Security Income (SSI) Benefits. Veterans' Benefits. Civil Service and Federal Retirement and Disability Benefits. Military Annuities and Survivors' Benefits.

Retirement accounts set up under the Employee Retirement Income Security Act (ERISA) of 1974 are generally protected from seizure by creditors. ERISA covers most employer-sponsored retirement plans, including 401(k) plans, pension plans and some 403(b) plans.

As a result, the U.S. actually did become debt free, for the first and only time, at the beginning of 1835 and stayed that way until 1837. It remains the only time that a major country was without debt. Jackson and his followers believed that freedom from debt was the linchpin in establishing a free republic.

When was the last time the debt ceiling was raised in the US? ›

Debt ceiling increases under President George W. Bush

While George W. Bush was President, both Republicans and Democrats controlled the House and the Senate at various points during his term. Congress increased the debt ceiling eight times in 2002, 2003, 2004, 2006, 2007, and twice in 2008.

America's growing debt is the result of simple math — each year, there is a mismatch between spending and revenues. When the federal government spends more than it takes in, we have to borrow money to cover that annual deficit. And each year's deficit adds to our growing national debt.

Rising debt means fewer economic opportunities for Americans. Rising debt reduces business investment and slows economic growth. It also increases expectations of higher rates of inflation and erosion of confidence in the U.S. dollar.

Investors in Japan and China hold significant shares of U.S. public debt. Together, as of September 2022, they accounted for nearly $2 trillion, or about 8 percent of DHBP. While China's holdings of U.S. debt have declined over the past decade, Japan has slightly increased their purchases of U.S. Treasury securities.

As of January 19, 2023, the U.S. had borrowed as much money as it is legally allowed to borrow—$31.4 trillion. Since then, the Treasury has taken so-called “extraordinary measures” to keep paying the nation's bills, but its ability to do so will end in the coming days according to Treasury Secretary Janet Yellen.

At the end of FY 2023 federal debt is “guesstimated” to amount to $32.69 trillion. Thus far, on 2023-05-25, the federal debt is $31.47 trillion. See Coronavirus Update page. Click for federal debt from 1960 to present.

When there is a government shutdown, federal agencies are required to classify their employees as either “essential” or “non-essential.” The employees classified as “essential” continue to work during the shutdown. However, the employees classified as “non-essential” are put on unpaid furlough.

Many people receive federal benefits such as Social Security or VA on a prepaid card. If your benefits are loaded onto a Direct Express card or to another prepaid account, they are still automatically protected from garnishment just like money in a bank account.

If you don't pay or request help within the time limit, we may take these actions: Collect your debt from your VA benefits.

Can IRS garnish veterans disability? ›

Normally, the IRS may not garnish VA disability benefits, even if the Veteran in question files for bankruptcy or finds themselves in major financial debt. However, the IRS can garnish VA disability benefits if the Veteran doesn't make legally required alimony payments or child support payments.

Typically between 20% and 50% of your benefits can be garnished. Less than 20% is considered to be an insufficient amount for a veteran's dependents, and more than 50% is considered to cause undue hardship to a veteran. Equal amount of funds will be provided to each child out of the garnishment.

Summary: The Virginia statute of limitations on debt is five years for written contracts and credit cards and three years for open accounts and oral contracts. When Virginia debt collectors contact you, check the statute of limitations before you pay anything off.

You can request a waiver if you can't afford to repay your full debt balance—even with smaller monthly payments over time. We may grant a waiver for part or all of a VA debt. If we grant your waiver request, you won't have to repay the amount we agree to waive.

A VA escape clause allows a buyer to walk away from the deal if the home's appraised value is less than the contract price. If the buyer walks away for this reason, they will get their earnest money deposit back.

You can request a waiver (asking us to stop collection action on the debt), write-off (asking us to cancel the debt), or compromise (asking us to accept a lower amount of money as full payment of the debt). If we grant part or all of your request, you won't have to pay the amount of the balance we agree to relieve.

Typically, between 20 to 50 percent of VA disability benefits can be garnished as 20 percent is considered to be an insufficient amount for a veteran's dependents and 50 percent is considered to cause undue hardship to a veteran.

There are two ways to stop garnishment in Virginia. One way is by filing for bankruptcy, which will stop all garnishments and other collection efforts. The other way is by filing for an exemption, which will exempt you from garnishment but not bankruptcy.

Are military or civil service retirees subject to garnishment? No. Retired military members' pay is exempt from garnishment for commercial debts. Under the Uniformed Services Former Spouses' Protection Act, child support, spousal support, or a property division are allowable.

Is a divorced spouse entitled to VA disability benefits? No. Under federal law, VA disability benefits are not marital property which courts can divide in a divorce. However, the VA disability payments are not invisible to the court, and do count as income when calculating child support or alimony.

Can an ex wife get VA benefits after death? ›

Am I eligible for a VA Survivors Pension as a surviving spouse? You may be eligible for this benefit if you haven't remarried after the Veteran's death, and if the deceased Veteran didn't receive a dishonorable discharge and their service meets at least one of these requirements.