Congress has established special rules for anyone in the armed forces who file for bankruptcy. If you serve in the armed forces, National Guard, or the reserves, you have the right to bankruptcy, but in Colorado, you’ll also need the advice and services of a bankruptcy lawyer.

Military service does not mean that you’re protected from financial hardships, but nothing in the law prevents active-duty military personnel from filing a bankruptcy petition. While serving in the armed forces, you have the same rights as a regular civilian to file for bankruptcy protection.

In fact, the military prefers that you have your finances in order, even if that means that you have to file a petition for bankruptcy. Bankruptcy can get you back on your feet and provide you with a fresh financial start.

If you’ll keep reading, you will learn about the unique rules for bankruptcy that Congress has established for active duty service members. You will also learn why active-duty military personnel who file for bankruptcy in this state must have the advice and services of an attorney for bankruptcy in Loveland.

What is the Servicemembers Civil Relief Act?

Active duty service members are protected by the Servicemembers Civil Relief Act (SCRA) when lawsuits generated by debts are brought against them. The statute was enacted in 2003, and it has been amended several times.

The SCRA covers matters that include installment contracts, credit card interest rates, rental agreements and deposits, prepaid rent, evictions, mortgage interest rates, foreclosures, civil judicial proceedings, automobile leases, life insurance, health insurance, and income taxes.

That law also gives many who are on active duty a six percent interest rate cap on their debts, except for federally guaranteed student loans. Additionally, in some cases, the SCRA also allows active-duty military personnel to terminate a lease and to avoid an eviction.

The SCRA and Bankruptcy

The SCRA authorizes courts to postpone or stay a bankruptcy proceeding for anyone who is on active duty. That legal protection is apart from the automatic stay protection provided by every bankruptcy, but bankruptcy also entails drawbacks.

Your credit score will take an immediate hit, you could lose some of your possessions, and bankruptcy could negatively affect your ability to obtain a security clearance. The specific advantages and disadvantages of filing for bankruptcy will depend on your unique financial circumstances.

How Does Bankruptcy Work for Military Personnel?

When you begin to learn about bankruptcy, you may ask: What is a Chapter 7 bankruptcy? What is a Chapter 13 bankruptcy? Chapter 13 and Chapter 7 are chapters in Title 11 of the U.S. Code, the full federal laws of our nation. Title 11 is the Bankruptcy Code, and Chapters 13 and 7 are the chapters that regulate personal bankruptcies.

Chapter 7 bankruptcies eliminate unsecured debts like credit cards and medical debt. Civilians who seek bankruptcy under Chapter 7 must pass a means test, which was established in 2005 to disqualify from Chapter 7 anyone who has too many assets or too much income.

However, some reservists, disabled veterans, and members of the National Guard are exempted from the Chapter 7 means test. To be deemed disabled for the purposes of bankruptcy, veterans need to have a disability rated at 30 percent or higher or a discharge due to a disability suffered or exacerbated while on active duty.

Members of the National Guard and reservists who are on active duty are also exempted from taking the means test for a Chapter 7 bankruptcy while serving and for the first 540 days after their active duty concludes.

Can Filing for Bankruptcy Disqualify You for a Security Clearance?

Whether or not filing for bankruptcy will impact a military service member’s approval for a security clearance will depend on a number of factors. The reasons behind your bankruptcy will be reviewed along with your financial records and your general job performance.

If, for example, you had to file for bankruptcy because of a medical emergency, your bankruptcy will be viewed more favorably than if you had to declare bankruptcy because of your irresponsible spending habits. A bankruptcy, by itself, may not disqualify you for a security clearance, but having a large amount of debt probably will.

That’s because someone who is not financially responsible and can’t pay off his or her debts may have bad judgment or might even be willing to violate the law. These are the specific conditions that might prevent someone in the armed forces from receiving security clearance approval:

  1. impulsive spending
  2. consistently paying bills, debts, and/or taxes late – or not at all
  3. committing petty crimes – or more serious crimes – for financial gain
  4. alcohol, drug, and/or gambling-related financial difficulties
  5. living an affluent lifestyle on a modest income

Is There a Financial Counseling Requirement?

If you are considering bankruptcy, you need to know about an important bankruptcy prerequisite: credit counseling. It’s a required step in the process. Pre-bankruptcy credit counseling is a requirement for anyone who’s going to file for a Chapter 7 bankruptcy or Chapter 13 bankruptcy.

Approved counseling agencies offer both online and in-person counseling. Bankruptcy-related credit counseling teaches you how to avoid a second bankruptcy. Lesson topics include how to use a credit card wisely, manage a budget, and deal with unanticipated financial needs.

The U.S. Department of Justice approves the agencies that provide legally-required bankruptcy counseling. A number of approved agencies offer bankruptcy counseling online and in classroom settings throughout the Loveland and Denver area. Your attorney can provide you with details.

Before You File for Bankruptcy

If you are considering bankruptcy, discuss your rights and options first with a qualified bankruptcy lawyer. Don’t take any legal steps before you have a bankruptcy attorney’s advice.

Bankruptcy is not the best option for everyone who struggles with debt. It’s a drastic measure, the last resort. A good bankruptcy attorney will help you explore your other options and alternatives.

However, if bankruptcy is the only realistic and practical way to resolve your debt issues, a Loveland bankruptcy attorney will protect your legal rights – and your assets to the extent that the law allows.

If you are serving our nation in the armed forces, and if you are even considering bankruptcy, or if you merely need to learn more about the process, schedule a meeting to discuss your options with a Colorado bankruptcy lawyer right away.