Military Bankruptcy -- SCRA Protections and Active Duty Filing

Bankruptcy rights for active duty servicemembers. The Servicemembers Civil Relief Act provides powerful protections that most attorneys do not fully understand.

SCRA Protections in Bankruptcy

The SCRA provides several protections that apply alongside or within bankruptcy:

• 6% interest rate cap. Pre-service debts are capped at 6% interest during active duty. This applies to mortgages, credit cards, auto loans, and student loans. The creditor must forgive (not defer) the excess interest.
• Stay of proceedings. Active duty servicemembers can request a stay (pause) of bankruptcy proceedings if military duty materially affects their ability to participate. The court must grant at least a 90-day stay.
• Protection from default judgments. Before entering a default judgment against a servicemember, the court must appoint an attorney to represent the servicemember's interests.
• Lease termination. Servicemembers receiving PCS orders or deploying for 90+ days can terminate residential and vehicle leases without penalty.
• Tolling of statutes. Time limits (including certain bankruptcy deadlines) may be tolled during active duty service.

Filing Bankruptcy While on Active Duty

Active duty servicemembers can file bankruptcy. Practical considerations:

• Credit counseling requirement still applies. The pre-filing credit counseling course is available online and can be completed from anywhere, including deployed locations.
• Power of attorney. If deployed, you can grant a special power of attorney to an attorney or trusted person to sign and file bankruptcy paperwork on your behalf.
• 341 Meeting attendance. Most courts allow telephone or video appearances for servicemembers who cannot attend in person. File a request for accommodation citing your military service.
• Which district? File in the district where you are domiciled (your Home of Record), not necessarily where you are stationed.

Impact on Military Career

• Security clearances. See our detailed security clearance guide. Bankruptcy alone does not automatically revoke a clearance.
• Promotions. Bankruptcy is not a disqualifying factor for promotion. Unresolved financial problems (not bankruptcy itself) are the concern.
• Reenlistment. Bankruptcy does not bar reenlistment. However, financial irresponsibility can be flagged during review.

Military-Specific Resources

• Military OneSource -- Free financial counseling at militaryonesource.mil. Available 24/7, worldwide.
• Armed Forces Legal Assistance (AFLA) -- Free legal help from military JAG offices. Contact your installation's legal assistance office.
• SCRA website -- Verify active duty status at scra.dmdc.osd.mil

Related Guides

• Veteran Bankruptcy -- VA Benefits and Disability Exemptions
• Security Clearance and Bankruptcy
• Military Bankruptcy FAQ
• The Automatic Stay (Section 362)