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Bankruptcy for Military Members

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As a member of our United States military, you are not exempt from financial hardships–in fact, the National Bankruptcy Forum estimates that 1 in 10 active-duty personnel file for bankruptcy each year. If you are having financial difficulties and are a member of the United States military, The Jones Law Firm has a few tips to ensure that your bankruptcy filing goes smoothly.

Bankruptcy Basics for Military Members

Typically, it is required that active-duty service members have their finances in order to avoid defaulting on debts while enlisted. But sometimes financial hardship is unavoidable be it due to the stress of moving around, medical issues, or more; as a member of the military, you may seek bankruptcy for relief.

Will bankruptcy impact my security clearance?

While nothing is legally stopping you as a member of the military from filing for bankruptcy, there are some issues that may arise as a result of your bankruptcy petition. In certain circumstances, filing for bankruptcy may interfere with your ability to get a high profile or high-level security job within your branch of the military.

If you are required to access classified information, you will need to fill out a background history that includes information about your finances. Such information includes:

Have you ever had an account delinquent over 90 days?
Have you ever been subjected to wage garnishment?
Have any judgments been made against you?

In many cases, a previous bankruptcy filing is looked upon more favorably than being in a lot of debt as it shows you were able to make a plan to repay or clear your debts. However, if your bankruptcy filing is due to a criminal conviction or irresponsible behavior, you may have issues with your security clearance.

Protections for Military Members Seeking Bankruptcy

If you are an active-duty service member and are considering Chapter 7 or Chapter 13 bankruptcy, you are afforded certain protections as a member of the military.

The Servicemembers Civil Relief Act (SCRA) was created to help ease financial burdens military personnel and their families may face by the demands of active duty and to allow them to “devote their entire energy to the defense needs of the Nation.”

The Act applies to all active-duty Army, Air Force, Coast Guard, Marine Corps, Navy, and members of the Reserve component; National Guard members when mobilized under federal orders for more than 30 consecutive days; and, active-duty commissioned officers of the Public Health Service and National Oceanic and Atmospheric Administration.

Protection against eviction and termination of residential and motor vehicle leases is also afforded to spouses and dependents under SCRA.

What is important to know is that the protections under SCRA are not automatic and you must request relief. Such protections you can request include:

Six percent interest rate cap
Protections against default judgments
Non-judicial foreclosures
Installment contracts and repossessions
Residential (apartment) lease terminations
Enforcement of Storage Liens

In addition, these protections may also give courts the ability to postpone both bankruptcy and non-bankruptcy proceedings against military personnel while on active duty. This can be used in addition to the financial protections of the automatic stay.

Means Test Exemptions for Military Members, Veterans

Many of the protections are afforded for active-duty service members, but there are actually protections for disabled veterans seeking financial relief as well. Under the bankruptcy code, if you are seeking Chapter 7 bankruptcy, you typically would have to pass the means test for income. However, for disabled veterans whose debts were primarily incurred when you were on active duty, you do not have to complete the means test.

In order to qualify for exemption from the means test, you must have a disability rated at 30% or more, or be discharged from active duty because of a disability suffered or perpetuated while in active-duty.

There are also exemptions for reservists and national guard members called into active duty; this is only temporary so be sure to meet with a bankruptcy attorney to ensure you fulfill exemption requirements.