Military Bankruptcy FAQ

12 common questions about bankruptcy for active duty servicemembers and veterans, answered in plain English.

Can active duty military file bankruptcy?

Yes. Active duty servicemembers can file any chapter of bankruptcy. The SCRA provides additional protections including the 6% interest rate cap on pre-service debts and the right to request stays of proceedings.

Does the SCRA 6% interest rate cap apply in bankruptcy?

Yes. The SCRA caps interest at 6% on debts incurred before entering active duty. This applies during bankruptcy and can reduce the total amount you owe on pre-service debts.

Can I file bankruptcy while deployed?

Yes. Complete credit counseling online, grant a special power of attorney for filing, and request telephone/video attendance for the 341 meeting. File in your home of record district.

Will bankruptcy affect my security clearance?

Bankruptcy alone does not automatically revoke a security clearance. Under section 525, the government cannot discriminate solely because of bankruptcy. Filing is often viewed as a mitigating factor. Self-report to your security manager immediately.

Is VA disability income counted in the means test?

No. VA disability compensation is excluded from current monthly income under 11 U.S.C. section 101(10A)(B)(ii). It does not count toward the means test, making it easier for disabled veterans to qualify for Chapter 7.

Can creditors take my VA disability benefits?

No. Under 38 U.S.C. section 5301(a), VA benefits are exempt from creditor claims. Keep VA deposits in a separate account to avoid commingling issues.

Will bankruptcy affect my military career?

Bankruptcy does not bar promotion, reenlistment, or PCS orders. Financial irresponsibility (not bankruptcy itself) is the concern. Filing bankruptcy actually shows you are addressing the problem.

Can I terminate my lease under the SCRA?

Yes. Servicemembers receiving PCS orders or deploying for 90+ days can terminate residential and vehicle leases without penalty under the SCRA, regardless of the lease terms.

Does military BAH count as income in bankruptcy?

BAH (Basic Allowance for Housing) is generally included in current monthly income for the means test. Unlike VA disability, BAH is not specifically excluded by the statute.

Can I use military legal assistance for bankruptcy?

Military JAG offices provide free legal assistance, including bankruptcy counseling. However, many JAG offices do not handle the actual filing. They can refer you to civilian attorneys or legal aid organizations.

What about the Thrift Savings Plan (TSP) in bankruptcy?

TSP accounts are protected in bankruptcy under ERISA and federal exemptions. Your TSP balance is exempt from creditors and will not be liquidated in Chapter 7.

Can I file bankruptcy during a PCS move?

Yes, but timing matters. File in the district where you are domiciled (home of record). If you are between duty stations, consult with an attorney about which district is appropriate.

Related Guides

• Military Bankruptcy -- SCRA Protections
• Veteran Bankruptcy -- VA Benefits
• Security Clearance and Bankruptcy