Bankruptcy Rules for Military Personnel

by
Richard Fonfrias, J.D.
Chicago's Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC



Servicemembers' Civil Relief Act (SCRA)

If you're an active duty member of the military, you have legal protections from civil actions launched against you. Courts are permitted to stay or postpone civil filings, including bankruptcy and non-bankruptcy actions, under the Servicemembers' Civil Relief Act (SCRA). These actions are in addition to the automatic stay granted by the bankruptcy court.

The purpose of the SCRA is to allow military personnel to serve their country without suffering legal or financial problems at home. Congress passed this law recognizing that pay for active duty and activated reservists would be below their regular income, which could make it hard to pay bills.

This law gives active duty personnel (1) reduced interest rates on current debts, (2) favored treatment for tenants about lease terminations and evictions, and (3) protection from civil actions and repossessions.

Disabled Veterans Chapter 7 Means Test

Under normal conditions, to qualify for Chapter 7 bankruptcy, you must pass a means test. This test was created to see whether debtors had enough disposable income to pay at least part of their debts before allowing them to erase those debts through liquidation.

If you are a disabled veteran, however, and if you incurred your debts mainly while on active duty or while taking part in homeland defense activities, then you do not need to complete the means test to qualify for Chapter 7 bankruptcy.

To qualify as a disabled veteran, you must have a rated disability of at least 30 percent, or have been discharged from active duty due to a disability you suffered or one that was made worse in the line of duty.

Reservists and National Guard Members Chapter 7 Means Test

If you are a member of the National Guard or an Armed Forces reserve unit - and if you were on active duty or were taking part in homeland defense activities for at least 90 days after September 11, 2011 - then you are exempt from the Chapter 7 means test while you are on active duty and for the following 540 days. This exemption is usually temporary and you must complete the means test form within 14 days after the 540-day period ends.

Bankruptcy and Your Security Clearance

Your security clearance will not automatically be affected by a bankruptcy. Instead, a combination of factors will come into play: Why you filed for bankruptcy. Your performance on the job. Your relationships with people at work. And so on.

If you have a large amount of debt, that debt may hurt your security clearance. So, in that case, a bankruptcy could help you because it shows you're trying to become financially responsible.

Bottom line, security clearances are evaluated on a case by case basis. So before you file for bankruptcy, check with your superiors to see whether a bankruptcy will cause a change in your security clearance.

Should you have any questions about the SCRA and Chapter 7 bankruptcy and how it can benefit as a disabled veteran, reservist or member of the military or National Guard, please contact Richard Fonfrias at rich@chicagomoneylawyer.com , or call 312-969-0730. You are under no obligation and your first consultation with Rich is free. Rich is a bankruptcy and financial rescue lawyer who specializes in helping people in debt. Rich provides legal services in Illinois, including bankruptcy help, loan modification services, credit repair, tax lien services, and foreclosure avoidance. Rich is a trusted Chicago bankruptcy lawyer who will work hard for you.