How Can Bankruptcy Help Military Members and Veterans Facing Debt?

Military service can bring financial challenges that are different from those faced by many civilian households. Deployments, permanent changes of station, transitions out of active duty, changes in household income, medical expenses, and other unexpected circumstances can make previously manageable debts increasingly difficult to handle.

For active-duty service members, reservists, National Guard members, veterans, and military families facing serious financial pressure, bankruptcy may provide a legal way to address qualifying debts and regain financial stability.



Federal bankruptcy law generally allows individuals to seek relief through Chapter 7 or Chapter 13, depending on their financial circumstances. Military members and veterans may also have additional protections or special bankruptcy considerations that should be evaluated before deciding how to proceed.

Understanding those rules can help you determine which protections apply to you and whether bankruptcy could provide meaningful relief.

Why Might Military Members and Veterans Consider Bankruptcy?

Military service does not make someone immune from the financial problems that can affect any household.

Debt can accumulate because of:

• Credit card balances
• Medical expenses
• Personal loans
• Vehicle loans
• Mortgage payments
• Divorce or family-related expenses
• Reduced household income
• Moving and relocation costs
• Unexpected emergencies
• Difficulty adjusting financially after leaving active duty

For some families, the problem is not a single large expense. Several obligations may accumulate until minimum payments, interest, and collection activity become impossible to manage.

Bankruptcy is designed to give qualifying individuals a way to discharge certain debts or reorganize their financial obligations.

Can Active-Duty Military Members File for Bankruptcy?

Yes. Serving on active duty does not prevent an individual from filing bankruptcy.

Like civilian debtors, qualifying service members may generally consider Chapter 7 or Chapter 13 depending on factors such as their income, property, debts, and financial goals.

Military status can introduce additional considerations, however, which makes it important to evaluate the person's complete circumstances rather than treating the case exactly like any other bankruptcy.

How Can Chapter 7 Help?

Chapter 7 bankruptcy may allow an eligible individual to discharge many qualifying debts and receive a financial fresh start.

Potentially dischargeable obligations may include certain:

• Credit card balances
• Medical bills
• Unsecured personal loans
• Collection accounts
• Other qualifying unsecured debts

Chapter 7 does not eliminate every type of debt, and filing does not automatically eliminate valid liens against secured property.

Eligibility also commonly involves the bankruptcy means test, although special rules can apply to certain military debtors.

How Can Chapter 13 Help?

Chapter 13 bankruptcy takes a different approach.

Instead of seeking an immediate discharge of qualifying debt, an individual with regular income proposes a repayment plan that generally lasts between three and five years. During the plan, bankruptcy law prohibits creditors from starting or continuing many collection efforts.

Chapter 13 can be particularly useful when someone wants to keep property while addressing overdue obligations.

For example, Chapter 13 may allow qualifying homeowners to stop foreclosure proceedings and catch up on delinquent mortgage payments over time, although they generally must continue making mortgage payments that come due during the plan.

For a military family that needs to protect important property while reorganizing debt, these options may be worth exploring.

What Happens to Creditor Collection Activity After Filing?

Filing bankruptcy generally triggers the automatic stay, which stops many creditor collection efforts while the bankruptcy case proceeds.

Depending on the circumstances, that protection can affect:

• Collection lawsuits
• Wage garnishments
• Collection calls
• Certain foreclosure activity
• Other creditor actions

For someone already dealing with aggressive collection activity, the automatic stay can provide important breathing room while debts are addressed through the bankruptcy process. Chapter 13 debtors, for example, are generally protected from lawsuits, garnishments, and other creditor actions while the plan is in effect.

There are exceptions and limitations, so the automatic stay should not be assumed to stop every action in every case.

Do Military Members Have Special Protections From Creditors?

Potentially.

The Servicemembers Civil Relief Act (SCRA) provides important protections to qualifying service members in certain civil proceedings and financial matters.

According to the U.S. Courts, the SCRA includes protections concerning:

• Default judgments
• Stays of certain civil proceedings
• Execution of certain judgments
• Attachments and garnishments
• Certain obligations incurred before military service
• Certain residential evictions
• Certain residential and automobile leases

Some provisions may also apply to reservists and inductees who have received qualifying orders but have not yet reported for active duty.

These protections are separate from bankruptcy, but the two bodies of law can interact when a service member is facing serious financial difficulties.

Does the SCRA Apply in Bankruptcy Cases?

The SCRA can apply to proceedings before bankruptcy courts.

The U.S. Courts explains that the SCRA generally applies to actions or proceedings commenced in a court and that, absent contrary provisions, its protections apply to bankruptcy proceedings as well.

For example, protections concerning default judgments can be relevant in certain bankruptcy adversary proceedings and contested matters.

This does not mean military status changes every aspect of bankruptcy. Instead, it means a service member's rights under the SCRA should be considered alongside the Bankruptcy Code when appropriate.

What Is the Bankruptcy Means Test?

The means test is used primarily to determine whether an individual consumer debtor may obtain Chapter 7 bankruptcy relief.

The calculation considers income and permitted expenses. If the debtor's calculated disposable income exceeds certain thresholds, a trustee, creditor, or another party in interest may seek dismissal of the Chapter 7 case.

The means test can therefore be an important part of determining whether Chapter 7 is available.

But military members and veterans should know that federal law contains special rules that can affect how the means test applies to certain individuals.

Are There Special Bankruptcy Rules for Veterans?

Yes, certain veterans' benefits receive special treatment in bankruptcy calculations.

The Honoring American Veterans in Extreme Need Act, commonly called the HAVEN Act, changed how certain veterans' benefits are treated when calculating income for bankruptcy purposes. The U.S. Trustee Program has explained that qualifying veterans' benefits are excluded from "current monthly income" for purposes of the Chapter 7 means test and Chapter 13 disposable-income calculations.

This can be an important consideration for veterans whose household income includes qualifying benefits.

However, not every source of income or every military-related benefit is necessarily treated identically. A veteran considering bankruptcy should have the specific benefits they receive reviewed before determining how they affect the case.

Can Disabled Veterans Receive Special Treatment Under the Chapter 7 Means Test?

Certain disabled veterans may qualify for an exception from the usual presumption-of-abuse means-test calculation.

Whether the exception applies depends on specific statutory requirements, including the nature of the veteran's disability and how the debts were incurred.

This is one reason a veteran should not assume that a relatively high household income automatically prevents them from qualifying for Chapter 7.

The appropriate bankruptcy forms include a specific supplement for debtors claiming an exemption from the Chapter 7 presumption-of-abuse calculation.

An attorney can determine whether a military-related exception applies to the individual's circumstances.

What About National Guard Members and Reservists?

National Guard members and reservists can also have bankruptcy considerations related to periods of qualifying active service.

Military activation can create significant financial changes. A reservist may move from civilian employment to military pay, while a spouse or other family member may experience employment disruption associated with deployment or relocation.

SCRA protections can apply to qualifying reservists in certain circumstances, including some individuals who have received orders but have not yet reported to active duty.

Because eligibility for military-specific bankruptcy provisions can depend on dates, service status, and other requirements, those facts should be reviewed carefully.

What Happens to VA Benefits in Bankruptcy?

Veterans who receive VA disability or other military-related benefits may understandably worry about what happens to that income during bankruptcy.

As discussed above, federal law provides special treatment for certain veterans' benefits when calculating "current monthly income" for bankruptcy purposes.

But several separate questions may arise, including how particular benefits affect:

• Chapter 7 eligibility
• Chapter 13 disposable income
• Bankruptcy schedules
• Property and exemptions
• Overall ability to fund a repayment plan

For that reason, veterans should disclose all benefits to their bankruptcy attorney rather than assuming a payment should be included or excluded from bankruptcy paperwork.

Can Bankruptcy Help With Credit Card and Medical Debt?

For many military families and veterans, unsecured debt is a significant part of the financial problem.

Chapter 7 can discharge many qualifying debts, providing eligible individuals with a fresh start.

Chapter 13 may instead allow an individual to address debts through a court-approved repayment plan while receiving protection from many creditor collection efforts.

The appropriate option depends on the types of debts involved and the person's overall financial situation.

Can Bankruptcy Help You Keep Your Home?

Potentially.

Chapter 13 can be particularly useful for individuals who have fallen behind on mortgage payments but want an opportunity to keep their homes.

Filing Chapter 13 can stop foreclosure proceedings through bankruptcy protections and allow delinquent mortgage payments to be addressed over time through the repayment plan. However, homeowners generally must continue making the regular mortgage payments that become due while the Chapter 13 case is pending.

Whether this strategy is realistic depends on the household's income, mortgage obligations, equity, other debts, and ability to maintain future payments.

What if You Have a Car Loan?

Reliable transportation can be especially important for military families, veterans, and individuals commuting to work or medical appointments.

Bankruptcy does not automatically mean losing a financed vehicle.

How a car and its loan are treated can depend on:

• Chapter 7 or Chapter 13
• Vehicle equity
• Loan balance
• Payment status
• Applicable exemptions
• Terms of the loan
• The debtor's financial circumstances

Chapter 13 can allow certain secured debts other than a mortgage on a principal residence to be rescheduled over the repayment-plan period, potentially lowering payments in some situations.

Does Bankruptcy Eliminate Every Debt?

No.

Bankruptcy can provide substantial relief, but certain debts may remain after a case is completed.

The discharge available also differs depending on which bankruptcy chapter is used. A discharge releases the debtor from personal liability for qualifying debts and prohibits creditors from continuing collection of those discharged obligations.

Before filing, military members and veterans should review all obligations, including:

• Credit cards
• Medical bills
• Mortgages
• Vehicle loans
• Taxes
• Student loans
• Child support or alimony
• Personal loans
• Judgments
• Other financial obligations

Understanding which debts can realistically be addressed is essential to determining whether bankruptcy will accomplish your goals.

Can Active Military Duty Affect Bankruptcy Requirements?

In certain circumstances, yes.

For example, individual debtors ordinarily must complete a financial-management course before receiving a discharge. The Bankruptcy Code provides limited exceptions to that requirement, including circumstances in which a debtor is on active military duty in a combat zone.

Other military-specific rules may depend on service status and circumstances.

Make sure your bankruptcy attorney knows if you are:

• Currently serving on active duty
• Deployed
• Serving in a combat zone
• A reservist
• A National Guard member
• A disabled veteran
• Receiving VA or other military benefits

Those facts may be legally relevant.

Should You Use SCRA Protections or File for Bankruptcy?

It does not necessarily have to be an either-or question.

SCRA protections can provide important relief in specific circumstances, but they do not function exactly like a bankruptcy discharge.

Bankruptcy can potentially discharge qualifying debts or allow them to be reorganized through a repayment plan. SCRA protections may instead temporarily suspend or limit certain proceedings and transactions or provide other protections related to military service.

The right approach depends on the financial problem you are trying to solve.

For example, someone facing a temporary hardship during active duty may have different needs than a veteran carrying substantial unsecured debt with no realistic ability to repay it.

What Should Military Members Bring to a Bankruptcy Consultation?

Military members and veterans should be prepared to provide a complete picture of their finances and military status.

Useful information may include:

• Pay statements
• Bank statements
• Tax returns
• VA benefit information
• Military retirement information
• Credit card statements
• Medical bills
• Mortgage information
• Vehicle loans
• Collection notices
• Lawsuit or garnishment documents
• Information about military status or qualifying service
• A list of assets and monthly expenses

Do not leave out military or veterans' benefits simply because you believe they will not count as income. Your attorney can determine how each source of income should be treated.

A Financial Fresh Start After Serving

Financial hardship can happen to anyone, including those who have served or are currently serving in the military.

Bankruptcy laws recognize that certain aspects of military service deserve special consideration. From SCRA protections to the treatment of certain veterans' benefits and military-related exceptions, service status can affect how a bankruptcy case should be evaluated.

The important thing is to understand which protections actually apply to your circumstances rather than assuming military status automatically qualifies you for—or disqualifies you from—a particular type of bankruptcy.

How the Law Office of Stuart M. Nachbar, P.C. Can Help

At the Law Office of Stuart M. Nachbar, P.C., Stuart Nachbar helps active-duty service members, veterans, military families, and other individuals throughout New Jersey understand their options when debt has become difficult to manage.

Whether you are considering Chapter 7 or Chapter 13 bankruptcy, your military service, benefits, income, property, and debts should all be carefully considered before you make a decision.

Stuart Nachbar can review your financial circumstances, explain how bankruptcy may affect your debts, and identify military-related protections or considerations that may apply to your situation.

If you are serving or have served our country and are facing financial hardship, contact the Law Office of Stuart M. Nachbar, P.C. at 973-834-8058 to discuss your bankruptcy options.