Are you or a loved one a member of the armed forces and facing bankruptcy? If so, then you should know that your (or your loved one’s) bankruptcy procedure will be slightly different than for a civilian.

Bankruptcy is a court procedure governed under Title 11 of the United State Code. Most individual bankruptcies are filed under Chapter 7 or Chapter 13. Chapter 7 bankruptcy is also known as liquidation bankruptcy. Under Chapter 7, a court appointed trustee sells your non-exempt property and distributes the profits among your creditors. Chapter 13 is also called “wage-earners bankruptcy” because it is designed to help those people who are employed pay off their debts within 5 years.

A member of the military is actually given more options in filing for bankruptcy than a civilian is. In order for a civilian to file for Chapter 7, they must qualify under an income test called The Means Test. In order to qualify for under The Means Test, the person seeking to file under Chapter 7 must make less than the median income for their state according to the IRS and the most recent Census.

However, a member of the military does not have to qualify under The Means Test. When changes were made to the bankruptcy code in 2005, members of the military were specifically exempted from having to qualify under The Means Test, making it easier for a member of the military to file Chapter 7.

In addition, members of the military can take advantage of a special act called the Servicemember’s Civil Relief Act (SCRA). SCRA protects servicemember’s ability to be assigned to active duty outside the US and still file for bankruptcy relief. Under SCRA, any civil case, including bankruptcy, can be postponed without damaging the servicemember’s interests if they are assigned to a station outside the US.

This means that if a member of the military files for either Chapter 7 or Chapter 13 and is assigned to active duty outside the US; the bankruptcy action will essentially be put on pause until the servicemember returns to the US. The purpose behind this act is to make sure members of the military can focus on their duty to their country without distractions even if their economic circumstances require them to file bankruptcy.

This is different than an automatic stay. An automatic stay prevents a creditor from suing a debtor who has filed for bankruptcy for the money they are owed while the bankruptcy proceeding is going on unless the creditor can show the court that their interest would be severely impaired by the automatic stay.

Servicemembers still get an automatic stay when they file for bankruptcy in addition to the protections of SCRA. Therefore, a servicemember’s bankruptcy case could be extended for months or even years beyond what a civilian’s bankruptcy case would take, because unlike with automatic stays, a creditor has no recourse if a servicemember is called on active duty.

The provisions of SCRA protect active servicemembers during their time of active duty and for 90 days after they are discharged from active duty, the military, or die. Portions of SCRA also protect reservists and inductees who have received orders to report for duty but have not reported or been inducted.

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