Can You File For Bankruptcy While in the Military?


When you are in the military, you are not barred from filing for bankruptcy, though there may be some implications on your future career path if you do choose to file. Most commonly some servicemembers are concerned about how their security clearance will be effected if they choose to pursue bankruptcy. Despite some of the obstacles bankruptcy can create, there are also many exemptions that are offered to veterans and other servicemembers.

The best approach to your bankruptcy filing as a military member is to consult with a bankruptcy lawyer who can inform you of your rights, your options, and the strongest plan for your situation.

Security Clearance & Bankruptcy Filings

While many members of the military who are seeking to advance their level are worried about the implications of bankruptcy on this goal, it is important to understand that filing alone will not be a disqualifier for retaining or gaining security clearance.

When an individual is behind or delinquent on their debt, they risk losing their clearance due to their financial vulnerability. Furthermore, the nature of the debts will also play into how security clearance is impacted. For example, if the debts were gained through excessive gambling or luxury activity, it would be seen as much more negative. However, bankruptcy can eliminate these debts, show a form of responsibility, and give a person a clean slate to start over with. Once the debts are gone, they will likely not be seen as vulnerable or risky.

Exemptions Available for Military Members

Overall, bankruptcy can be a very positive tool for those struggling to overcome their financial obstacles. Especially for the brave men and women that serve our country, staying on top of bills and debts at home can be extremely challenging. That is why there are certain exemptions and exclusions provided to qualifying military members.

For example, if you are a disabled veteran, you will not have to pass the means test to file for Chapter 7 if most of your debts were incurred during active duty or while you were performing services connected to homeland defense. In addition to that, veteran benefits are viewed as exempt as assets in many cases.

There is also a National Guard or Reservist exemption that allows members to opt of the means test under the National Guard and Reservist Relief Act. They must meet the following requirements:

  • On active duty or serving homeland defense for a consecutive period of at least 90 days; and
  • Filed for bankruptcy within 18 months of leaving active duty.

Keep in mind that this military exemption is slated to expire in December 2015, though it may still be extended.

Another key act is the Servicemembers Civil Relief Act, which provides pre-bankruptcy relief as well as protection during the filing process. When you file, this act can help safeguard you from objections to debt discharges, collections, evictions, and other creditor actions.

Find Out if Bankruptcy is Right for You

In general, bankruptcy will not negatively affect your current military status so long as you follow the process and move forward from your debts in the future. Your Command will likely not be notified of your filing, nor will filing impact your eligibility to remain in the military.

If you would like to find out more about filing for bankruptcy while in the military, call on our Phoenix bankruptcy lawyer for counsel.