Military Members and Bankruptcy

The last thing a service member needs on their mind is the 341 meeting of creditors, the means test, or other formalities associated with filing bankruptcy. Fortunately, some disabled veterans and reservists of the National Guard may be exempt from many things associated with bankruptcy, such as the Chapter 7 bankruptcy means test.¹

Veteran’s Benefits

Moreover, Arizona law does exempt military survivor annuities paid pursuant to a Survivor Benefits plan. 10 U.S.C. § 1450(i). Your Veterans Disability Benefits should be protected from bankruptcy regardless of whether you will be receiving those benefits after the bankruptcy has been filed, provided these funds are not co-mingled with non-exempt funds.² 38 U.S.C. § 5301(a)(1). Also, veterans benefits are another non-bankruptcy benefit that is available in Arizona because it is specially regulated.³

The Servicemember’s Civil Relief Act

The Servicemembers’ Civil Relief Act (SCRA) applies in bankruptcy cases to protect military members from entering into default judgments and allows the court to stay the bankruptcy proceeding against military debtors.⁴ More specifically, the SCRA is designed to allow service members to focus on defense instead of administrative and transactional proceedings that could affect military service.⁵ 50 U.S.C. §§ 501 et. seq. You are a service member if you serve in the Army, Air Force, Navy, Marine Corps, or Coast Guard on active duty or if you are an active commissioned officer of the Public Health Service, National Oceanic and Atmospheric Administration, and any lawful absence.⁶

Protection against default judgments is important. The SCRA does not allow creditors to start an involuntary case against a service member and then seek default judgment the service member if he or she did not appear.⁷ 11 U.S.C. § 303.

The Act does apply to all actions before a bankruptcy court. 50 U.S.C. §§ 521, 522, 524. The Act should apply to service members who are absent because of sickness, wounds, leave, or any other lawful cause.⁸ However, the provisions of the Act usually end within 90 days of a servicemember’s discharge from duty.⁹

The Federal Rules of Bankruptcy also recognize that the SCRA applies to default judgments, bankruptcy adversary proceedings, and contested matters. Fed. R. Civ. P. 55(b);¹⁰ Fed R. Bank. P. 7055, 9014.

Since there are multiple issues concerning how bankruptcy may affect your current military service, it is best to talk to an experienced AZ bankruptcy lawyer about your situation.

[1] Baran Bulkat, Bankruptcy for Military Personnel, nolo.com, http://www.nolo.com/legal-encyclopedia/bankruptcy-military-personnel.html (last visited Mar. 12, 2014).

2 Whitney G. Coats, How does filing bankruptcy affect my Veterans Disability Benefits Income?, danafirm.com (2013), http://www.danafirm.com/resources/articles/bankruptcy/bankruptcy-how-does-filing-bankruptcy-affect-my-veterans-disability-benefits-income/.

3 Federal Bankruptcy Code Exemptions Not Available in Arizona, Chapter7Secrvices.com, http://www.chapter7services.com/Chapter_7_Bankruptcy_Arizona.php (last visited Mar. 13, 2014).

4 SCRA Servicemembers’ Civil Relief Act, uscourts.gov, http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/SCRA.aspx (last visited Mar. 13, 2014).

5 Id.

6 Bankruptcy and Members of the Military, legalinfo.com, http://www.legalinfo.com/content/bankruptcy/bankruptcy-and-members-of-the-military.html (last visited Mar. 13, 2014).

7 2008 Ann. Surv. of Bankr. Law 18 (2008).

8 2008 Ann. Surv. of Bankr. Law 18 (2008).

9 SCRA Servicemembers’ Civil Relief Act, supra note 4.

10 This is the federal rule for default judgments.