If you are currently enlisted in the military, including branches like the National Guard, or if you are a veteran or wounded in action, you may be entitled to certain exemptions and special requirements when filing for bankruptcy.
Disabled Veteran Exemptions
Disabled veterans are not always required to pass the “means test.” The means test a financial check list which considers both income and debt to determine whether or not you are eligible to file for Chapter 7 bankruptcy. Wounded or disabled veterans are not required to pass the means test under the following circumstances:
- If the debts you are seeking to discharge were mostly incurred while on active duty in the military.
- If the debts you are seeking to discharge were mostly incurred while performing activities related to homeland defense.
This also means that military disability compensation will not be included in your income for the purposes of a Chapter 7 bankruptcy, regardless of the amount you receive or the amount of time you’ve been receiving it.
What Qualifies as a “Disability?”
- Your disability was assigned a rating of 30% or more by the VA.
- You were discharged or released from duty because your disability was acquired or made worse by active duty.
What Qualifies as “Active Duty?”
- Active duty is full time military service, which can include full-time training or enrollment in military schools.
- Full time Nation Guard duty does not meet the requirements of active duty, however, they have alternate exemptions listed below.
National Guard/Reserve Exemptions
Individuals enlisted in the National Guard will be able to opt out of the means test in the following situations:
- If you were on active duty for a period of at least 90 consecutive days.
- If you file for Chapter 7 bankruptcy within 18 months (540 days) after leaving active duty.
These rules are set by the National Guard and Reservists Debt Relief Extension Act of 2015, which as of January 2016, extended these exemptions until 2019 at which point they will be reconsidered.
Veterans Benefits Exemptions
Veterans benefits may be exempt as assets if:
- You live in any of the following states: Alaska, Arkansas, Connecticut, District of Columbia, Hawaii, Kentucky, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Texas, Vermont, Washington, or Wisconsin.
- Your individual state, not listed above, has passed exemption laws which protect veteran’s benefits.
Please note, benefits will still count towards income in the means test, unless they are subject to the exceptions for disability or service in the National Guard.
Debt Collection Protection
The Servicemembers Civil Relief Act 2003 allows for a number of protections against foreclosures, evictions, debt collections and wage garnishments. The SCRA is particularly important for delaying or stopping:
- Objections to discharge.
- Post-bankruptcy evictions or collections actions.
- Rights of a creditor when granted a relief from automatic stay.
- Trustee actions against property.
- Debtor’s examinations.
It is important to consult with an attorney before attempting to proceed with bankruptcy if you are or were a member of the United States military. Depending on the state you live in and your personal circumstances, you may be eligible for a number of benefits or exceptions. Make sure you are fully informed before you make any decisions regarding your bankruptcy.