Bankruptcy for Military Personnel

Learn about bankruptcy rules that apply to military members.

By , Attorney

If you are in the military, you have the same right to file for bankruptcy relief as a civilian, and active-duty military personnel and disabled veterans enjoy certain benefits over non-military bankruptcy debtors. However, filing for bankruptcy could affect your security clearance. Read on to learn more about filing for bankruptcy if you are a military member.

Servicemembers' Civil Relief Act Provides Legal Protection for Active-Duty Personnel

The Servicemembers' Civil Relief Act (SCRA) provides active-duty military members with many legal protections in civil actions initiated against them. The SCRA gives courts the right to stay or postpone bankruptcy and non-bankruptcy proceedings against military personnel on active duty. Further, the protections afforded by the SCRA are separate from and in addition to the automatic stay provided by bankruptcy.

The SCRA offers other protections you can read about in Legal Protections for America's Military: The Servicemembers' Civil Relief Act.

Qualifying for Chapter 7 Bankruptcy and the Means Test

To qualify for Chapter 7 bankruptcy, debtors must typically pass the Chapter 7 means test. The means test determines whether filers have enough disposable income to repay debts. If they don't, they qualify to receive a Chapter 7 debt discharge. Filers who can afford to pay some or all of their debt must use Chapter 13 or Chapter 11 if the filer exceeds Chapter 13 debt limit guidelines.

However, some military members aren't required to take the means test. You can find the exclusion criteria on the Chapter 7 bankruptcy means test form or keep reading.

Disabled Veterans Are Exempt from the Chapter 7 Means Test

Suppose you're a veteran with a disability who incurred most debt while on active duty or performing a homeland defense activity. In that case, you wouldn't need to complete the means test to qualify for Chapter 7 bankruptcy.

To be considered a disabled veteran for means test purposes, you need to have a disability rated at 30% or more or be discharged from active duty because of a disability suffered or aggravated in the line of duty.

Some Reservists and National Guard Members Called to Active Duty Don't Need to Pass the Means Test

Other servicemembers aren't required to take the means test, as well. Members of the National Guard or a reserve unit of the Armed Forces who were called to active duty or performed a homeland defense activity for at least 90 days after September 11, 2001, are excluded from Chapter 7 means testing requirements while on active duty and for 540 days afterward.

Important note. This exclusion is usually temporary. You'll be subject to the means test requirement 14 days after your 540-day exclusion period ends.

Do You Have a Security Clearance? Find Out How Filing for Bankruptcy Could Affect It.

A bankruptcy filing doesn't automatically revoke your security clearance. Whether it is affected by bankruptcy will depend on a variety of things, including why you filed, your job performance, and other related factors.

By contrast, having large amounts of outstanding debt will almost certainly jeopardize your security clearance. In that instance, filing for bankruptcy might help if viewed as a positive step toward financial responsibility.

Learn whether you should file for bankruptcy now or wait.

Consult a Bankruptcy Lawyer

Determinations regarding security clearances are usually made on a case-by-case basis. Before filing, check that your bankruptcy won't adversely affect your security clearance with your superior or consult a bankruptcy lawyer. Learn more about special financial protections for the military.

Need More Bankruptcy Help?

Did you know Nolo has made the law easy for over fifty years? It's true, and we want to ensure you find what you need. Below you'll find more articles explaining how bankruptcy works. And don't forget that our bankruptcy homepage is the best place to start if you have other questions!

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Helpful Bankruptcy Sites

Department of Justice U.S. Trustee Program

United States Courts Bankruptcy Forms

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.

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