A landmark class action lawsuit has confirmed what thousands of veterans long suspected: the military systematically discharged service members with personality disorder diagnoses as a way to avoid providing PTSD benefits and disability compensation. The case, Kennedy v. McCarthy, resulted in a nationwide settlement approved in April 2021 that forces the Army Discharge Review Board to automatically reconsider thousands of denied discharge upgrade cases. For the more than 31,000 service members separated with personality disorder diagnoses between 2001 and 2010 alone, this settlement represents the first large-scale acknowledgment that the Department of Defense used a psychiatric loophole to strip veterans of the benefits they earned. The financial incentive behind the practice was staggering.
By classifying combat-related trauma as a pre-existing personality disorder, the DoD saved an estimated $4.5 billion in medical care and $8 billion in disability compensation — money that would have gone to veterans had they been properly diagnosed with PTSD or other service-connected conditions. Veterans slapped with a personality disorder label were typically denied VA healthcare and disability benefits entirely, since the diagnosis classified their condition as something they had before they ever enlisted. McCarthy settlement and what it means for affected veterans, the evidence of systemic misdiagnosis uncovered by government audits, related legal actions that have strengthened veterans’ rights, and the practical steps veterans can take now to seek a discharge upgrade. We also cover proposed 2026 VA rating changes that could affect mental health compensation going forward.
Table of Contents
- Why Did the Military Separate Veterans With Personality Disorder Diagnoses Instead of Treating PTSD?
- What Did the Kennedy v. McCarthy Settlement Actually Change for Veterans?
- What Did Government Audits Reveal About Personality Disorder Discharge Practices?
- How Can Affected Veterans Apply for a Discharge Upgrade Now?
- What Are the Limitations and Risks Veterans Should Know About?
- The Cowles Case and Its Impact on False Adjustment Disorder Diagnoses
- Proposed 2026 VA Mental Health Rating Changes and What They Mean
- Frequently Asked Questions
Why Did the Military Separate Veterans With Personality Disorder Diagnoses Instead of Treating PTSD?
The answer comes down to money and administrative convenience. A personality disorder is classified as a pre-existing condition — something a service member supposedly had before joining the military. That classification means the military bears no responsibility for treatment or compensation. PTSD, on the other hand, is a service-connected condition that entitles a veteran to VA healthcare, disability payments, and a medical discharge with full benefits. From 2001 to 2007, the military discharged over 4,000 enlisted members per year with pre-existing personality disorder diagnoses, many of whom were almost certainly suffering from combat-related PTSD or other acquired psychiatric disorders. The Army was the worst offender.
Between 2005 and 2007, the Army alone diagnosed up to 1,000 soldiers per year with personality disorders. When the Department of Defense finally tightened its separation procedures, that number dropped to 260 by 2009 — a reduction that itself suggests the earlier numbers were inflated by misdiagnosis rather than reflecting genuine pre-existing conditions. If the disorder were truly pre-existing, improved procedures would not have cut diagnoses by 74 percent. The pattern was particularly damaging because it targeted service members at their most vulnerable. Soldiers returning from combat deployments in Iraq and Afghanistan — exhibiting classic symptoms of post-traumatic stress — were told their problems were baked into their personalities from birth. Instead of receiving treatment and a dignified medical discharge, they were separated with less-than-honorable discharges that followed them into civilian life, barring them from VA care, GI Bill education benefits, and even some civilian employment opportunities.
What Did the Kennedy v. McCarthy Settlement Actually Change for Veterans?
Steve Kennedy and Alicia Carson filed Kennedy v. McCarthy on April 17, 2017, on behalf of approximately 50,000 less-than-honorably discharged Iraq and Afghanistan-era Army veterans with PTSD and related conditions. On December 21, 2018, Federal Judge Warren W. Eginton of the U.S. District Court for the District of Connecticut certified a nationwide class, giving the case the reach needed to force systemic change. The parties reached settlement terms on November 17, 2020, and the court approved the agreement on April 26, 2021. Under the settlement, the Army Discharge Review Board must automatically reconsider thousands of denied discharge upgrade cases dating back to April 2011, applying what is called “liberal consideration” for mental health conditions. This is a significant shift from the previous standard, where veterans bore the burden of proving their discharge was wrong.
Veterans discharged between October 7, 2001 and April 16, 2011 gained expanded reapplication rights. The ADRB also implemented universal telephonic hearings, eliminating the old requirement that veterans travel to Washington, D.C. to make their case in person — a barrier that had effectively blocked many veterans who lacked the money or health to travel. However, the settlement is not automatic relief for every affected veteran. The ADRB is reconsidering cases, not granting blanket upgrades. Veterans whose cases are reviewed may still be denied if the board determines their original discharge was appropriate. The most recent status report, filed December 1, 2025, indicates that settlement implementation and monitoring remain ongoing. Veterans can track developments and find resources at the official settlement website, kennedysettlement.com. If you were discharged from the Army with a personality disorder or other mental health-related diagnosis during the covered period, you should check whether your case falls within the settlement class.
What Did Government Audits Reveal About Personality Disorder Discharge Practices?
Government Accountability Office investigations confirmed the problems that veterans and their advocates had been raising for years. An October 2008 GAO audit reviewed 312 service members separated for personality disorders at four military installations and found troubling gaps in compliance. Only 40 to 78 percent of cases met the basic requirement that a psychiatrist or psychologist confirm the disorder actually affected the service member’s ability to function. In other words, at some installations, more than half of personality disorder separations lacked proper clinical documentation. A follow-up September 2010 GAO report was even more damning.
The GAO concluded that “the military services have not demonstrated full compliance with DoD’s personality disorder separation requirements.” The report made clear that the safeguards the Department of Defense had put on paper were not being followed on the ground, and that service members were being separated without the clinical rigor that such a consequential diagnosis demands. These audit findings mattered beyond their immediate scope because they established a documented record of institutional failure. When Kennedy v. McCarthy went before the court, the GAO’s work provided independent, government-sourced evidence that the military’s personality disorder discharge process was broken. For individual veterans seeking discharge upgrades outside the class action, the GAO reports remain useful evidence to cite in applications to discharge review boards and boards for correction of military records.
How Can Affected Veterans Apply for a Discharge Upgrade Now?
Veterans who believe they were wrongly separated with a personality disorder diagnosis have several avenues for seeking relief, and understanding the differences matters. The Army Discharge Review Board handles requests to change the character of discharge or the reason for discharge, but it can only review cases within 15 years of the discharge date. For cases older than that window, veterans must apply to the Army Board for Correction of Military Records, which has broader authority but a longer processing time. Under the Kennedy settlement, veterans whose cases fall within the class may benefit from the automatic reconsideration process without having to file a new application. However, veterans discharged from other branches — the Navy, Marines, or Air Force — are not covered by the Kennedy settlement, which applies specifically to Army discharges.
Those veterans must apply to their respective branch’s discharge review board or board for correction of military records independently. The liberal consideration standard for mental health conditions has been adopted across the DoD through separate policy guidance, so non-Army veterans can still invoke it, but they will not have the benefit of the court-ordered review process. The practical tradeoff is between waiting for the settlement’s automatic review process and filing a proactive application. Veterans within the Kennedy class may want to check their status through kennedysettlement.com before filing a separate application, as duplicate filings can create confusion. Veterans outside the class — whether because of their branch, discharge date, or other factors — should not wait and should file directly with the appropriate board. Free legal assistance is available through organizations like the Yale Law School Veterans Legal Services Clinic, local legal aid societies, and veterans service organizations that provide accredited claims agents.
What Are the Limitations and Risks Veterans Should Know About?
A discharge upgrade is not guaranteed, and veterans should understand what can go wrong. Even under the liberal consideration standard, the review boards retain discretion. A veteran whose service record includes misconduct unrelated to their mental health condition may face an uphill battle, because the board will weigh the totality of the record. The liberal consideration standard asks the board to give greater weight to mental health evidence, but it does not override other factors entirely. There is also a documentation challenge. Many veterans separated a decade or more ago may have limited medical records, particularly if the military did not thoroughly document their mental health symptoms at the time of discharge.
Veterans should gather any available evidence — private medical records, buddy statements from fellow service members, and post-service treatment records showing PTSD or related diagnoses — before applying. The stronger the evidence that a current or longstanding PTSD diagnosis aligns with the service period, the better the chances of a successful upgrade. One frequently overlooked risk involves benefits timing. Even if a discharge is upgraded, retroactive benefits are not automatic. A veteran who receives an upgraded discharge may then need to file a separate VA disability claim, and the effective date of that claim will generally be the date of application, not the original discharge date. Some veterans have succeeded in arguing for earlier effective dates, but this requires additional legal work. Veterans should not assume that a discharge upgrade alone will result in a lump-sum back payment of years of denied benefits.
The Cowles Case and Its Impact on False Adjustment Disorder Diagnoses
The personality disorder discharge problem has a close cousin: the misuse of adjustment disorder diagnoses to deny veterans medical retirement. The Yale Law School Veterans Legal Services Clinic filed suit on behalf of William Cowles, a veteran with more than 20 years of service in the Army National Guard, who was discharged based on an erroneous adjustment disorder diagnosis when his symptoms warranted medical retirement for PTSD. The clinic won a major victory in the Cowles case, establishing legal precedent against the use of false adjustment or personality disorder diagnoses to deny retirement benefits.
The Cowles case matters because it demonstrates that the misdiagnosis problem was not limited to junior enlisted personnel receiving personality disorder labels. Even career service members with decades of service were vulnerable to having their combat-related trauma reclassified as a lesser condition that conveniently avoided triggering medical retirement obligations. For veterans in similar situations — particularly those with long service records who were given adjustment disorder diagnoses near the end of their careers — the Cowles precedent provides a legal framework for challenging those decisions.
Proposed 2026 VA Mental Health Rating Changes and What They Mean
Looking ahead, the VA has proposed new mental health rating rules that could reshape how all veterans with service-connected psychiatric conditions are compensated. The proposed system would implement a more structured, symptom-based approach to rating mental health disabilities. Most notably, the proposed rules would remove the 0 percent mental health rating and establish a minimum 10 percent rating for any service-connected mental health diagnosis.
For veterans who succeed in upgrading their discharges and subsequently file VA disability claims for PTSD, this change could be meaningful. Under the current system, some veterans receive a 0 percent rating — an acknowledgment of a service-connected condition that carries no monthly compensation. The proposed minimum 10 percent floor would ensure that every veteran with a recognized service-connected mental health condition receives at least some compensation. These rules are still in the proposal stage, and veterans should monitor their progress through official VA channels rather than assuming they are already in effect.
Frequently Asked Questions
Who is covered by the Kennedy v. McCarthy settlement?
The settlement covers approximately 50,000 Army veterans who received less-than-honorable discharges related to PTSD and behavioral health conditions during the Iraq and Afghanistan era. Veterans from other branches are not included in this specific settlement but may pursue discharge upgrades through their own branch’s review boards.
What does “liberal consideration” mean for discharge upgrade applications?
Liberal consideration requires military discharge review boards to give greater weight to evidence that a veteran’s misconduct or performance issues were related to PTSD, TBI, or other mental health conditions connected to their service. It shifts the standard in the veteran’s favor without guaranteeing an upgrade.
Can veterans discharged before October 7, 2001 benefit from the Kennedy settlement?
No. The Kennedy settlement covers Army veterans discharged on or after October 7, 2001. Veterans discharged before that date would need to apply independently to the Army Board for Correction of Military Records, though they can still cite the liberal consideration standard in their applications.
Does a discharge upgrade automatically restore VA benefits?
Not automatically. An upgraded discharge makes a veteran eligible to apply for VA healthcare and disability benefits, but they must still file a VA disability claim. The effective date of benefits will generally be the date of the new application unless the veteran successfully argues for an earlier date.
How long does the discharge review process take?
Processing times vary significantly. The Army Discharge Review Board has historically taken several months to over a year. Cases going to the Board for Correction of Military Records often take longer. Veterans in the Kennedy settlement class may experience different timelines depending on the volume of cases under review.
Is there a deadline to apply for a discharge upgrade?
The Army Discharge Review Board generally requires applications within 15 years of discharge. The Army Board for Correction of Military Records can consider cases beyond that window but may require the veteran to explain the delay. Veterans should apply as soon as possible rather than waiting.