Many veterans are being tripped up by a not well-known federal law which stipulates that separation pay has to be repaid before they can receive a check for any VA benefits they are eligible for. Separation pay—essentially severance pay—is often paid when service members leave the military prior to retirement. The separation can be voluntary or involuntary, but either way federal law on repayment makes no distinction. Until the full amount of separation pay is repaid, VA benefits will be withheld. The Military Times reports that, “in the case of voluntary separation pay, the law allows the military service secretaries to waive the debt, but such waivers are rare.”
According to many veterans and veterans’ advocacy groups, the repayment requirement is not well communicated to service members when they separate from the military. This posting on a military online bulletin board is an all-too-typical situation:
“On Friday I received a VA letter stating that I was rated with 30% service-connected disability with a payment of around $450. The letter also stated that my payments would start in April 2016. My rating was approved on 3 March.
I spoke with the VA and they said that the law states that any severance pay (Separation pay) from the military for separating early is to be repaid to the Treasury Dept upon the approval of any disability.
I separated last June and received $19,000 in separation pay. Before I got my VA letter, I received a letter from the DAV that said what my rating was, so I was expecting to receive that payment, plus 9 months of back pay, on 1 April. The e-benefits website also had all my documentation about how much my payment would be, but no mention of having to repay my separation pay.
I spoke with a veteran's benefits attorney who told me that this is a closely guarded secret. She said that separation pay is a "loan" until the disability is approved, then the separation pay is taken out of the disability until it is paid back. When I attended the TAPS briefing at my base, the DAV representative that briefed us was extremely honest and up front about everything that can happen with the VA (the time spent waiting for medical evaluations, time spent waiting for rating approval, how to appeal the rating). Not one person in that briefing mentioned this to us.
Separation pay is recouped by the government in monthly installments. Individuals who can demonstrate financial hardship may be able to qualify for a more lenient repayment plan.