When veterans and members of ourNational Guard, Reserves, and active-duty military experience financial trouble, it is often made worse by the rigors of life in the service. It is an ugly reality that many creditors cannot be bothered to help servicemembers or vets when deployments or even injuries take their financial toll. In fact, some creditors make a living by preying on servicemembers, as I have seen in my Philadelphia bankruptcy and debt resolution practice. Fortunately, there are some specific protections afforded to servicemembers and veterans under theBankruptcy Code and other federal statutes, such as the Servicemembers Civil Relief Act and the National Guard and Reservists ReliefAct, that can be a lifeline for struggling servicemembers.

Servicemembers Civil Relief Act

The Servicemembers Civil Relief Act (“SCRA”)gives servicemembers a reprieve from difficult financial situations that can arise while on active duty.  Some of those protections include the right to do the following:

• Set aside default judgments;
• Stay (suspend) certain civil lawsuits and administrative matters;
• Limit the amount of interest a creditor may charge on debts arising prior to active duty (generally to 6%);
• Stop a landlord from evicting a service member or dependents of a servicemember for nonpayment of rent for up to three months (and receive additional relief from the court);
• Terminate a residential lease entered into before active duty upon beginning active duty;
• Terminate a residential lease entered into during active duty if the servicemember receives a  Permanent Change of Station (PCS) or is deployed for 90 days or more, and     the rent is below a set amount (currently $2975.54);
• Terminate a car lease signed before  active duty if the servicemember is activated for more than 180 days;
• Terminate a car lease signed during  active duty if the servicemember receives a PCS for overseas or is deployed overseas for 180 days;
• Terminate a cell phone contract if deployed for at least 90 days (if the phone cannot be used in the new location);
• Stop a creditor from repossessing property under an installment contract (such as a car loan) without a court order; and
• Stop a foreclosure against a servicemember’s residence for at least nine months after the end of active duty (and, in some cases, the sale or seizure of the property may be     overturned).

This act also provides other benefits, such as tax relief, suspension of health insurance while on active duty (with guaranteed reinstatement upon return), and suspension of some life insurance premiums.

Most of these protections are in place while the debtor is on active duty and for sixty days thereafter. However, none of these rights are automatic. To assert rights under this act to terminate leases and contracts, the servicemember must write to the creditor and enclose a copy of their orders. Servicemembers must petition the court for relief when a legal action is involved, such as an eviction or other lawsuit. Moreover, there are restrictions under this act. For example, some protections apply only to debts that the servicemember incurred before going on active duty. In the case of a residential or auto lease, additional individuals who signed the lease (other than the servicemember and spouse) may not be released from their obligations.

Active National Guard and Reservists May be Exempt from the Bankruptcy MeansTest.

The National Guard and Reservists DebtRelief Act of 2008 exempts active duty members of the National Guard or Reserves from the bankruptcy means test.Under this act, members of the National Guard and Reserves who are called to active or homeland security duty for 90 days or more are excused from the test for the entire time they are on active duty and for 540 days after their active duty ends. This exception is important because the bankruptcy means test looks at the average of your previous six months of income to determine if you qualify for Chapter 7. Activated reservists and Guardmembers often experience a drastic drop in income. By looking only at servicemembers’ current income, this exception prevents them from being forced into an unworkable Chapter 13 plan.

Disabled Veterans May Be Exempt from the Bankruptcy Means Test. 

Under the Bankruptcy Code, disabled vets are exempt from the means tests if they meet a specific definition of disability.  (11 U.S.C. § 707(b)(2)(D))To qualify, the vet must be either (a) rated by the Veteran’s Administration asat least 30% disabled or (b) discharged as a result of a disability incurred in the line of duty. (38 U.S.C. 3741(1)) However, this exclusion applies only when the veteran's debts were incurred primarily on active duty.

Veterans Benefits May be Exempt in Bankruptcy.  

Under the 2019 Haven Act, veterans' disability benefits are not included in the means test. This means that (1)more veterans will qualify for Chapter 7, and (2) veterans in Chapter 13bankruptcy may see lower plan payments.

On the federal level, veterans’ benefits are also exempt property in bankruptcy, meaning creditors cannot get to them, even when they are in the debtor's bank account.  (11 U.S.C. 522(d)(10)(B))This exemption applies in states like Pennsylvania that allow the use of federal exemptions in bankruptcy. In addition, Pennsylvania has a state exemption for veterans’ benefits. This exemption can be useful in protecting assets from a creditor who obtains a judgment and attempts to levy a bank account. However, under either exemption, co-mingling the funds in a bank account with other funds may cause the funds to lose their exempt status.

Quick Note: Older retired vets may find that there are other provisions of theBankruptcy Code and state law applicable to seniors that offer additional protection.

Pre-Filing Courses Waived for Active-Duty Military

Credit counseling course requirements in bankruptcy are waived for servicemembers in combat zones. Servicemembers on active duty in a combat zone can receive a waiver of the credit counseling course required under the bankruptcy code. The servicemember must file a motion to obtain the waiver, but most judges will grant the request.  (11 U.S.C. 109(h)(4))

Although this post does not address all the nuances of this legislation, it can serve as a starting point for both active servicemembers and veterans experiencing tough financial times.Hopefully, Congress will pass legislation giving those serving in our Army,Navy, Air Force, Marines, Coast Guard, National Guard, and Reserves even greater protections in the near future.

‍

Harborstone Law has always worked with veterans and members of the military. We offer discounts to active military, reservists, and veterans.

‍