Bankruptcy decisions for our Military Men and Women

Thu, Aug 28, 2014


Bankruptcy is not just a civilian issue.  The need for bankruptcy protection extends inside the fences of our mmilitaryilitary bases, and includes our country’s heroes.  For any active-duty service member contemplating bankruptcy protection, there are several very important issues to consider before filing.

First, the Servicemember’s Civil Relief Act (SCRA) provides legal protection for active duty personnel. This Act gives a court the option to postpone both bankruptcy and non-bankruptcy proceedings against active duty personnel.  The protections provided by the SCRA are separate from and in addition to the automatic stay provided in the Bankruptcy Code.

Second, disabled veterans are exempt from the bankruptcy Chapter 7 means test.  The means test was created to disqualify debtors who have sufficient disposable income and can pay back a portion of their debt in a Chapter 11 or 13, which is often less favorable for a debtor.  If a filer is not a disabled veteran, he or she must first pass the means test to qualify for a Chapter 7 bankruptcy.

National Guard Members, Reservists, and Armed Forces called into active duty may also be excluded from the means test.  Any of these persons called into active duty or who have performed homeland security activity for a period of at least 90 days after September 11, 2001 are excluded from the Chapter 7 means test.  They are exempt from the means test requirements while on active duty, and up to 540 days after their duty concludes.

Third, an important consideration is the effect on any security clearance. Filing for bankruptcy doe not automatically affect a security clearance, but the security clearance does depend on a variety of factors such as the reasons which drove a person into bankruptcy.  Is the filing related to job performance, a relationship with a co-worker and/or superior?  Generally, if there is a large amount of outstanding debt it may hurt a security clearance.  On the flip side, by filing and removing that debt, it in turn may help a security clearance because it can be seen as a positive step towards financial independence.  If a security clearance determination is pending, military personnel should first look into this prior to filing to determine any adverse effects, and possibly consider delaying the filing.  It is important to remember that every case is unique, so there is no black and white answer.

Attorney Christopher D. Smith, Sr. is a Board Certified Consumer Bankruptcy Lawyer by the American Board of Certification.  SmithLaw is located in Lakewood Ranch, Florida.  Attorney Smith concentrates in bankruptcy, civil litigation, probate, estate planning, and elder exploitation cases in the Sarasota and Bradenton area.  Call 941-202-2222 to learn more.  SmithLaw offers free consultations in certain areas, including consumer bankruptcy, probate, and personal injury matters.


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