The Department of Veterans Affairs (VA) has reportedly recouped billions of dollars in special separation pay from countless disabled veterans, according to new data obtained by NBC News. Over the last 12 fiscal years, approximately $3 billion in lump-sum incentives has been demanded back from veterans who received it when the U.S. military needed to downsize or release slightly injured service members.

The VA data, starting from fiscal year 2013, reveals that around 122,000 veterans have already returned more than $2.5 billion, with an additional $364 million still to be recouped. Many veterans have expressed financial and emotional distress due to the repayment demands, feeling trapped in a seemingly never-ending cycle.

Damon Bird, an Army veteran who received approximately $74,000 as an incentive to leave the military in 2015, described the situation as disheartening, stating, "It felt like I would never see the light at the end of the tunnel." Bird, who suffers from service-connected bladder cancer and post-traumatic stress disorder, and his wife had to move in with their daughter in 2021 after the VA withheld his monthly disability payment of over $2,400 until he returned the separation pay.

This controversial practice stems from a little-known federal law that prohibits disabled veterans from simultaneously receiving separation payouts and disability compensation. Experts in military law and veterans policy have admitted their lack of knowledge regarding this obscure law, which has caused significant financial hardships for disabled veterans since it was authorized by Congress in 1949.

Congress has maintained a long-standing prohibition on service members receiving multiple government benefits concurrently for the past 75 years. When disability severance pay was authorized in 1949, it explicitly stated that the payment had to be recouped through VA disability compensation. This recoupment rule carried over to other forms of separation payments unrelated to disabilities when they were authorized in the 1990s, including the Special Separation Benefit (SSB), which aimed to assist the Defense Department in managing its force size.

Advocates argue that the recoupment statute should not apply to non-disability related separation incentives, as it unjustly deprives veterans of their earned benefits. Marquis Barefield, an assistant national legislative director with DAV (formerly Disabled American Veterans), clarified that the two payments of separation incentives and disability compensation are distinct and should be treated as such.

Veterans like John Colage, a Navy veteran who survived the tragic explosion on the USS Iowa in 1989, are fighting against the VA's recoupment policy in the U.S. Court of Appeals for Veterans Claims. Colage received approximately $23,000 in SSB payout in 1992, only to be told in 2017 that he had to pay it back after filing for VA disability for PTSD and other conditions.

Critics argue that the VA is using convoluted interpretations of the law to justify recouping SSB payouts. Colage contends that the VA is erroneously applying a section pertaining to retirement pay rather than disability. A motion filed by VA Secretary Denis McDonough's attorney requested an extension to respond to Colage's case, citing workload as one of the reasons.

Despite previous attempts to challenge the recoupment policy, veterans like Salahudin Majeed, an Army veteran who received an SSB payout in 1992, have lost their battles in the Court of Appeals for Veterans Claims. Majeed expressed his disappointment, stating, "What I thought was rightfully mine, they were not going to give it to me."

As disabled veterans continue to endure the financial burden of repaying separation pay incentives, the debate over the enforcement of this little-known law intensifies. Advocacy groups and veterans alike are calling for a reassessment of the recoupment statute, emphasizing the need to separate non-disability related incentives from disability compensation, urging the VA to reform its policies and protect the benefits earned by veterans.