Entitlement to Withheld Retirement Pay

An advance decision was requested concerning the effect of a discharge in bankruptcy granted a service member on the retired rolls who was not receiving retired pay because of the statutory requirement that his retired pay be withheld in the amount of 75 percent of any readjustment pay he received. The specific question was whether the amount to be withheld constituted a debt which was dischargeable in bankruptcy. The member, an Air Force officer, was involuntarily released from active duty. Since he met the requirements for readjustment pay, he was paid $15,000 at the time of his release. On the day following his involuntary release, he enlisted in the Air Force in the rank of sergeant. With this additional service as an enlisted member, he subsequently completed 20 years of active service and became entitled to retired pay. The Air Force determined that retired pay could not be paid to him until an amount equal to 75 percent of the readjustment pay he received had been deducted immediately from his retired pay. The withholding of retired pay is not the collection of a claim; that is, it is not a debt due the United States and the amount to be deducted cannot be deducted from any pay other than retired pay. A debt under the bankruptcy law is liability on a claim. A claim is basically a right to payment, and a creditor is one who has a claim against the individual filing the bankruptcy petition which arose before the filing of the petition. A discharge in bankruptcy does not extinguish a debt but rather frees the debtor from personal liability and provides him with a personal defense to debt collection actions by a creditor. The member had no personal liability to repay it. Instead of having a debt for readjustment pay, under the statutory provisions he had a reduced retired pay entitlement. Accordingly, the withholding of the member's retired pay in the amount of 75 percent of the readjustment pay he was paid was required, and none of the amount so withheld should be repaid to him.