Bankruptcy for Military Personnel: Any Differences?

For the most part, the bankruptcy rules and process is the same for military personnel, veterans, and non-military members of society. However, being a veteran or on active duty in the miltary does confer special treatment in a few areas of bankruptcy.   

Servicemembers’ Civil Relief Act: Bankrutpcies May Be "Stayed" While on Duty

The Servicemembers' Civil Relief Act (SCRA) not only protects the right of military personnel to file for bankruptcy, but also it grants a court the right to stay bankruptcy proceedings against active-duty military members. Some SCRA protections may be extended to inductees and reservists who have been given their orders and have not yet been inducted or reported to active duty.

In general, SCRA protections end for active-duty military personnel:

• 90 days after being discharged from active duty
• 90 days after being discharged from military service, or
• upon their death.

The Means Test Does Not Apply to Disabled Veterans

Generally, if you file for Chapter 7 bankruptcy and your income is greater than the median income in your state, you'll have to take the "means test." Under the means test, you deduct certain allowed expenses from your income. If you have enough left over to fund a Chapter 13 repayment plan, you probably won't be allowed to file for Chapter 7 bankruptcy. Your filing will be "presumed" to be an abuse.

There is an exception to this rule for disabled veterans. If your disability is rated at least 30% and more than half of your debt was incurred while you were on active duty or performing a homeland defense activity, you don't have to take the means test. This means you get to file for Chapter 7 bankruptcy regardless of how much income you have. 

Active Duty Might Overcome a Presumption of Abuse for the Means Test

If you aren't a veteran, and after the means test your remaining income puts you in the "presumed abuse" category, you might still be ble to file for Chapter 7 bankruptcy if you can show that special circumstances apply in your case. The special circumstances must increase your expenses or decrease your income so that you would pass the means test.

Although "special circumstances" is not defined in bankruptcy law, Congress has cited as an example of a special circumstance, "a call or order to active duty in the Armed Forces." This means that if you have extra expenses because of your military service that wouldn't otherwise be counted for purposes of the means test, you may be able to overcome a presumption of abuse -- and be permitted to file for Chapter 7 bankruptcy.