Leave of Absence from PHD What are the benefits and harm of taking a leave of absence after the first year of PhD?  

......My situation is as follows.... I just completed the first year of PhD in Epidemiology at one of the top 5 programs in the nation and failed all my classes both semesters. All year long I'd battled with PSTD, Separation Anxiety, and Depression brought on by psychological and physical abuse experienced after moving back in with my parents for a few months while I applied to PhD program. This was exacerbated by the subsequent 3 months stint of homelessness I experienced in order to flee the real risk of physical harm.  Unfortunately, this all occurred immediately before the start of classes in September. When the academic year started, I moved into academic housing and dissimulated my problems but could not hide it very long as my performance was less than optimal. My depression was so severe that I forgot how to speak, I experienced memory loss, could not write comprehensive essays, and even forgot how to spell simple words on tests.

When my professors became worried that I was not cut out for the program, my chair and academic advisor were made aware of the situation. Since then, they have worked with me to link me up to services on campus, meet with me regularly to check in and advise me on how to manage several situations.

The issue now is that although I am getting better and my grades have improved, they are not competitive to keep me in the program. Luckily, I have been given a temporary academic disability status to allow the university to make accommodations for my situation.  Provided that my improvement is a work in progress, my chair is recommending a year's leave of absence to help me get back in good health before resuming studies.  This is a swell idea for if I was younger than 30, was financial stable to be able to afford the luxury of moving out of student housing or had a family to rely on,  had a job waiting for me.  I am having a hard time seeing any benefit to taking a year off, even if it means  starting fresh. 

If anyone has had a similar experience, please offer some advise or anecdote to how you handled the situation.
Universities have procedures for that. Moreoever, universities are run by people who have lives, families, friends in such situations and who can understand and sympathize. It sounds very much as if the people in your department fall into this category and are supportive of you.

What matters is that you get your footing back and get healthy again. If that means taking a leave of absence, then that is what you should do. If there ever comes a need to explain what you did for the semester or year that you took off, you can always say "for health reasons" -- which is true, and which everyone will understand is an important and legitimate reason to take time off, and which nobody is going to count against you.

Of course, the reasons you cite against it are all very good as well. I don't think anyone here can suggest useful strategies other than finding some low-stress job that helps you pay the bills, get you back on your feet, and allow you to come back to the program in better shape and with better prospects. The alternative, however, is not all that appealing either: as you state in your post, if you keep doing what you're doing, you may fail out of the program and then you're in no better situation either. In fact, the situation may be worse since it's easier to come back after taking a year of absence than come back from being kicked out of the program.

Ultimately, what matters is that you get healthy again. Everything else should be a secondary consideration.