Bankruptcy and Military Members

This article examines the Servicemembers’ Civil Relief Act and explains the rights of armed forces military members under the Act. If you’re active-duty military or a member of the National Guard and are considering bankruptcy, contact an experienced bankruptcy attorney. They can help you determine whether bankruptcy is your best option and what protections the SCRA might offer.

The Servicemembers’ Civil Relief Act

Filing a Chapter 7 or Chapter 13 bankruptcy can be challenging. Not only do you have to worry about filing the proper bankruptcy forms, but you also have to wait to see if the bankruptcy judge approves your petition or repayment plan.

The last thing the government wants is for an active-duty service member to focus on their financial issues instead of defending their country. The legal protections under the Servicemembers’ Civil Relief Act allow debtors in the military to focus their energy on the defense of the United States.

Some of the protections under the SCRA include:

• Tenant protection against eviction
• Protection against foreclosure and repossession
• Protection from default judgments
• Stay of civil proceedings (where the debtor has notice)
• Caps interest on qualifying pre-service debts at 6% during period of military service if written notice is given with orders (amounts above 6% must be forgiven)
• Stay of execution of judgments, wage garnishments, and bank levies

Since the SCRA protections apply to all civil proceedings involving military personnel, they also apply to military bankruptcy cases.

Who Does the SCRA Apply To?

The SCRA applies to all active-duty members of the United States military. It doesn’t matter what military branch a person is in. All are eligible for protection under the SCRA.

Specifically, the SCRA offers bankruptcy protection to the following:

• All active-duty military members
• Activated National Guard and Reserves
• Commission Corps of the National Oceanic and Atmospheric Administration (NOAA)
• Commission Corps of the Public Health Service

SCRA protection ends when the military discharges a servicemember, within 90 days of discharge, or upon death. Parts of the SCRA also apply to reservists and inductees who have their orders but have not yet reported to active duty.

The SCRA and Bankruptcy

The SCRA’s language states that it applies to any civil action or proceeding commenced in any court, including the U.S. Bankruptcy Court. The SCRA’s default judgment protections also clearly apply in bankruptcy cases.

The SCRA’s specific protections are different for Chapter 13 and Chapter 7 bankruptcy cases. Let’s take a look at each one.

SCRA and Chapter 7 Bankruptcy Cases

If you’re in the military and file for Chapter 7 bankruptcy, the SCRA will afford you special protections that the regular bankruptcy laws do not. The SCRA offers the following extra protections:

• You may not have to pass the means test if you qualify for an exemption for certain disabled veterans whose debts were primarily incurred while on active duty or in homeland defense activity
• The automatic stay begins when you file and generally ends at discharge, dismissal, or case closure. Courts may grant SCRA stays in certain related civil matters, but SCRA does not automatically extend the bankruptcy stay post-discharge.

SCRA and Chapter 13 Bankruptcy Cases

In Chapter 7, the bankruptcy court liquidates the filer’s assets and uses the proceeds to pay off creditors. The court discharges the rest of the filer’s debts once the proceeds are paid to the creditors in order of priority.

In Chapter 13, the bankruptcy court helps the debtor restructure their debt through a three-to-five-year repayment plan. Once the debtor files for bankruptcy, the court imposes the automatic stay. This prohibits creditors from taking any adverse action against the debtor.

For members of the military, these same protections are in place. The court also ensures that creditors do not take any of the following actions against the bankruptcy filer:

• Foreclosure for late mortgage payments
• Repossession of a vehicle or other item of personal property
• Default judgment in a civil lawsuit for a debt
• Eviction for late rent payments
• Excessive interest rates during the repayment plan
• Executing on a civil judgment with a wage garnishment, bank levy, lien, or other attachment

Creditors face civil and even criminal penalties if they violate any of the above restrictions.

How Do Members of the Military Exercise Their Rights Under the SCRA?

If you need protection under the SCRA, you have options. You can either write a letter to the court, or your bankruptcy attorney can wait and file a motion once a creditor takes adverse action against you.

When a creditor attempts to sue you, they must submit an Affidavit as to Military Service. A copy of their affidavit is required with their civil action.

When you petition the court for bankruptcy protection under the act, you do not need to prove you’re eligible for protection. The judge will review the information you submit, confirm that you are active-duty or otherwise qualified, and determine whether the creditor has violated the SCRA.

Disclaimer: FindLaw strives to provide readers with the most current information. Bankruptcy laws change frequently, so consider talking to a bankruptcy lawyer for legal advice before filing for bankruptcy. They will confirm the current bankruptcy laws and guide you through the bankruptcy proceedings.

Contact a Bankruptcy Lawyer for Help With Your Case

If you’re in the military and considering bankruptcy, contact a local bankruptcy lawyer. They’ll help you file your bankruptcy petition and request SCRA protection. Having an initial consultation with a seasoned bankruptcy attorney can make the entire process much easier to understand.

Additional Resources:

• Bankruptcy Basics: Six Types of Bankruptcy
• Bankruptcy: Advantages and Disadvantages
• Finding a Bankruptcy Alternative
• Bankruptcy: Frequently Asked Questions