Attorney at Debt Advisors Law Offices
Practice Areas: Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, Stop Foreclosure
Military service can bring changes that affect your finances. A new duty station may mean a spouse leaves a job. A deployment can change your family’s expenses. Debt can also build up from credit cards, car loans, medical bills, and other costs.
Service members and veterans can file Chapter 7 or Chapter 13. They may also have special protections under federal law. A bankruptcy lawyer in Wisconsin can help you understand how military pay, VA benefits, active-duty status, and other factors may affect your case.
The Servicemembers Civil Relief Act gives eligible service members extra protection with certain debts and legal matters.
One important rule covers debt taken on before military service. In many cases, the SCRA limits the interest rate on that debt to 6% while the person is on active duty. This may cover credit cards, car loans, mortgages, student loans, and other qualifying debts.
The service member usually needs to send the creditor written notice and proof of military service. The SCRA can also help with some court cases, foreclosures, evictions, leases, and installment contracts.
The SCRA does not erase debt. It gives eligible service members extra protection when military service makes money problems harder to handle.
These protections can matter before or during bankruptcy. They do not replace the bankruptcy process or change all of its rules.
Military members generally use the same two main types of bankruptcy as other people. Chapter 7 and Chapter 13 work differently.
|
Issue |
Chapter 7 |
Chapter 13 |
| Basic approach | Clears many debts | Uses a payment plan |
| Typical plan | No repayment plan | Usually 3 to 5 years |
| Property | Some property may be sold | You usually keep your property |
| Regular income | A means test may apply | Income is used for plan payments |
| Military exceptions | Some people may qualify for an exception | Military benefits may affect income rules |
In Chapter 7 bankruptcy, you can discharge many unsecured debts. A trustee also reviews your property and exemptions.
Chapter 13 bankruptcy lets you keep your property while making payments under a court-approved plan. This may help if you need time to catch up on a mortgage, car loan, or other debt.
Some do. But being on active duty does not automatically mean you can skip the Chapter 7 means test. Federal law has special rules for certain disabled veterans. These rules may apply when most of their debts came from active duty or homeland defense service.
There is also a temporary exception for some Reserve and National Guard members. It can apply if they served on qualifying active duty or homeland defense duty for at least 90 days. The exception can last for up to 540 days after that service ends.
Military service can affect the Chapter 7 means test, but you must meet the federal rules to get an exception.
Regular military pay is generally still counted when the means test applies. Military service does not automatically remove your pay from the calculation.
Many VA benefits are strongly protected under federal law. Under 38 U.S.C. § 5301, qualifying veterans’ benefits are generally protected from creditors. Some exceptions can apply.
Bankruptcy law also gives special treatment to certain military and veterans’ disability, combat-related, and death benefits.
The HAVEN Act changed how some of these benefits are counted in bankruptcy. Certain VA and Department of Defense payments tied to disability, combat injury, or death are not counted as “current monthly income.”
This can affect the Chapter 7 means test and Chapter 13 income calculation. Not every type of military pay or retirement income is treated the same. The type of benefit matters.
Filing bankruptcy does not automatically mean you will lose your security clearance. Your financial history may still be reviewed. Clearance decisions can look at your debts, your judgment, your honesty, and why you had money problems.
For example, debt caused by job loss, medical problems, divorce, or another event outside your control may be viewed differently if you took steps to deal with it.
Trying to hide debt or bankruptcy can cause a separate problem. If you have to report financial problems under military or security rules, give accurate information.
Military income can come from several sources. Different types of pay and benefits may be treated differently in bankruptcy. Before filing, gather records that show your household income and debts.
Useful documents include:
Also check when you took out each debt. The date of the debt may matter when looking at your SCRA rights.
If deployment or another urgent problem is affecting your debts or collections, you may also need to consider the timing of an emergency bankruptcy filing.
No. The SCRA can lower the interest rate on some pre-service debts and provide other protections. It does not cancel the debt.
No. Federal law has exceptions for certain disabled veterans and qualifying Reserve and National Guard members. You must meet specific requirements.
Some VA and Department of Defense benefits are not counted as current monthly income under the HAVEN Act. The type of benefit matters.
No. A bankruptcy does not automatically cause you to lose your clearance. Your full financial situation may still be reviewed.
Yes. The SCRA can limit the interest rate to 6% on many qualifying debts taken out before military service, as long as you meet the legal requirements.
Military bankruptcy can involve rules that do not apply to everyone. Your active-duty status, military benefits, SCRA rights, and type of debt can all matter.
At Debt Advisors Law Offices, our lawyers help Wisconsin service members, veterans, and military families understand their bankruptcy options.
Have questions about your situation? Schedule a consultation to get started.
Learn about bankruptcy protections, types of bankruptcy, how to get started, what to expect, and who to trust. Filing bankruptcy is the ONLY way to completely eliminate debt. If bankruptcy is right for you, it offers powerful protections that cannot be achieved through alternative solutions such as hardship relief, loans, or debt settlement.
