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Can I File Bankruptcy While in the Military?

Posted By Allmand Law Firm, PLLC || 29-Mar-2016

While serving in the military, individuals have the same rights as regular civilians to file bankruptcy protection in order to save their valuable assets. However, individuals should keep in mind that certain high-ranking positions require security clearances that may not be available to people who have filed for bankruptcy. Nevertheless, there are no legal restrictions that prevent military personnel from filing for bankruptcy protection under the Chapter 7 or Chapter 13 provisions.

Bankruptcy Can Be a Good Option For Military Personnel

When individuals join the military, there are general expectations for personnel to maintain a decent standard of living. However, this does not mean military personnel are somehow immune from financial hardships or simple accidents. While serving far away from home, it is not uncommon to see military personnel experiencing financial hardship associated with their situation. For example, service members may be forced to bear costs associated with maintenance or simple housekeeping of their assets back home.

Some military personnel members fear filing bankruptcy because they are afraid it will interfere with their reputation. However, the reality is that military personnel will have more respect if they can maintain a strong financial situation. In some cases, filing for bankruptcy can be a good option that enables military personnel to get back on their feet financially.

To protect the security of national secrets, the military follows rules that ensure an individual’s finances are in order. For military personnel to see classified information, they will have to obtain high-level security clearances that require extensive background checks. Unfortunately, this can mean that bankruptcy can have a negative impact on individual’s ability to work in these positions. The first question generally asked of military personnel seeking a high-level security clearance is if they ever had an account delinquent beyond 180 days. Second, military personnel are generally questioned about whether they have been subject to wage garnishment in the past. Finally, questions are asked about whether the military personnel member has ever had any judgments against them. Unfortunately, it is not uncommon to see these situations associated with individuals who file for bankruptcy.

The Service Member’s Civil Relief Act

If you are an active military personnel member and want to consider the possibility of filing for bankruptcy, it is important that you work with experienced bankruptcy attorney who understands the implications of bankruptcy law. In recent years, laws have been passed that offer special rights to military personnel who are experiencing financial hardship. This law, called the Service Member’s Civil Relief Act, offers special protections when filing for either Chapter 13 or Chapter 7 bankruptcy. These laws are put in place to help active military personnel members to focus on their duties, rather than their financial situation.

This act either prevents or delays:

  • Default judgments initiated by debt collectors
  • Foreclosure proceedings
  • Bank attachments
  • Eviction proceedings
  • Garnishment of wages

The Service Members Civil Relief Act is generally very beneficial in a variety of consumer law applications. However, it can also assist military personnel who are filing for bankruptcy. The law is able to prevent a wide range of proceedings during the bankruptcy process that could be detrimental to consumers.

These include:

  • Default judgments pertaining to the dischargeability of a debt
  • Obligation discharge objections
  • Debtor examinations
  • Collection actions that occur after bankruptcy proceedings have finished

Special Protections From the Service Members Civil Relief Act

No Need to Pass Chapter 7 Means Test

When ordinary individuals wish to file for Chapter 7 bankruptcy, they must first prove that they are within certain income guidelines. In most situations, income derived from military employment is included for the Chapter 7 means test. The good news is that many individuals who serve in the National Guard or who are disabled veterans are exempt from the means test associated with Chapter 7 bankruptcy. However, it is important for individuals to keep in mind that there are several limitations on this exemption.

Exemption for Disabled Military Veterans

In the court system today, disabled veterans are given special privileges if their financial hardship is associated with active duty service. Specifically, the exemption is provided when veterans accrue debt during:

  • Active service duty
  • Any activity associated with defending the homeland

Exemption for National Guard Personnel

Active members of the National Guard are also given special privileges to potentially opt out of the Chapter 7 means test.

These exemptions are specifically provided when:

  • An individual was involved with defending the homeland for a period of at least 90 consecutive days
  • The individual successfully filed for bankruptcy within a period of 18 months after leaving the service

Credit Counseling

In order to file for bankruptcy, there are laws in place the generally require debtors to first seek credit counseling services. For members of the military who were active abroad, automatic exemptions from this counseling requirement are provided.

Veterans Benefits and Their Bankruptcy Implications

Veterans who receive ongoing benefits from their years in service are afforded certain protections during the bankruptcy process. In many states, a system is in place where veterans benefits are automatically exempted from bankruptcy proceedings. However, there are some states that actually attempt to seize veterans benefits. In some cases, there are still outstanding actions that veterans can take to prevent their benefits from being confiscated.

In American society, military personnel members are viewed with a degree of reverence that is seldom afforded to other individuals. While there are laws in place that penalize military personnel who maintain poor finances, these laws are not designed to penalize the implications of active duty. Military personnel who are experiencing hardship should not feel afraid to declare bankruptcy if it is necessary.

If you have questions about bankruptcy and your options, contact Allmand Law Firm, PLLC.

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