Military Service members: Fighting the Debt and Bankruptcy War

Military Service members: Fighting the Debt and Bankruptcy War

Military servicemembers going off to war often find themselves fighting another war, a financial one. According to a survey of 700 servicemembers and 100 servicemember spouses, 19% of military personnel are dissatisfied with their financial situation. The root of that dissatisfaction may be high debt and the inability to manage household finances while deployed for active duty. Fortunately, military servicemembers who want to use bankruptcy to get handle on their damaged finances, there are some special protections specifically designed for those people serving in the military.

Servicemembers’ Civil Relief Act

The Servicemembers’ Civil Relief Act (SCRA) provides active-duty military members extra protections that stop creditors from seizing their assets while the military member is on active duty. Below are some of the ways SCRA may protect you if you’re an active duty military member:

  • The SCRA postpones foreclosures and default judgments against a debtor who’s on active duty with the military.
  • The SCRA stops evictions of active duty military members while on active duty.
  • The SCRA prevents creditors from garnishing the active duty military member’s salary or military pay.
  • The SCRA stops bank levies against the military member while that person is on active duty.

However, it’s important to note that under certain circumstances collections activity will resume once the military member is no longer on active duty.

While active duty military members get the most protections, there are some protections available for those who are not on active duty. Below are some protections for military members up to 90 days after they’ve left active duty:

  • Postponement of creditor objections to bankruptcy discharge.
  • Postponement of bankruptcy trustee actions to seize your property.
  • Postponement of post-bankruptcy evictions and collection actions, such automatic stay relief.

Means Test Exemption

For most people filing bankruptcy, taking the means test is required to determine if they’re eligible to file Chapter 7 bankruptcy. If you don’t “pass” the means test, meaning you have enough money to pay your debts, then you must file Chapter 13 bankruptcy and repay creditors over the course of three to five years. Fortunately, for some veterans and military personnel, they are exempt from taking the means test.

If you are a disabled veteran who wants to file bankruptcy, you are exempt from taking the means test if:

  • You became disabled (or an existing disability was worsened) during full-time active duty.
  • Your disability is rated 30% or more or you were discharged from the military because of your disability.

While full-time National Guard members are excluded from the “full-time active duty” definition, they may still be exempt from taking the bankruptcy means test.

If you are a reservist or member of the National Guard, you may be exempt for taking the bankruptcy means test if:

You were active duty and/or participated in homeland defense for at least 90 days and you file bankruptcy with 540 days after leaving active duty.

This rule comes from the National Guard and Reservists Relief Act of 2008 (NGRRA) but it may expire December 2015.

security-clearanceSecurity Clearance

Some military members fear that filing bankruptcy may negatively impact their security clearance, but in reality it is large amounts of indebtedness that could put your security clearance at risk. Nevertheless, before filing bankruptcy speak with your military superiors to determine if bankruptcy will affect your security clearance.

“Before filing bankruptcy speak with your military superiors to determine if bankruptcy will affect your security clearance”

If you want to explore how bankruptcy can help you put your financial house in order, speak with a qualified bankruptcy attorney today.