Military personnel residing in New York may not be civilians, but they are still people, and as such can struggle financially like anyone else. They are also allowed to file for bankruptcy protection if their debts become unmanageable, but unlike the rest of us, active-duty military members and disabled veterans enjoy certain debt-related protections that may delay or even prevent bankruptcy entirely.

The Servicemembers’ Civil Relief Act

The Servicemembers Civil Relief Act (SCRA) is a law that guarantees certain protections to active-duty members of the U.S. military when civil proceedings are commenced against them. For example:

  • Creditors may not receive a default judgment against a deployed service member who can neither respond to the action nor defend themselves in court.
  • Courts are permitted to postpone or stay bankruptcy proceedings when the member is active-duty.
  • Creditors with a judgment can be ordered to stop all collection actions from the time the military debtor is called to duty until up to 90 days after their discharge.

The purpose of the SCRA to protect service members from legal and administrative proceedings that could harm their civil rights, thereby enabling them to stay focused on their military duties.

When a lawsuit or collection action is temporarily halted, a military member may have enough time to resolve the issue without needing to file for bankruptcy. If not, certain advantages are granted even during the filing process if the serviceperson files for Chapter 7.

Chapter 7 Means Test exemptions

Debtors are normally required to pass a means test in order to qualify for Chapter 7 bankruptcy protection. The test, which is intended to determine which filers have enough disposable income to repay some or all of their debts, is not required for disabled veterans who incurred their obligations primarily while on active duty or engaged in homeland defense. To qualify, the veteran must:

  • Have a disability rating of 30% or more
  • Have been discharged from active duty due to a disability incurred in the line of duty

Even reservists and members of the National Guard may be excluded from means testing while they are on active duty and for 540 days afterwards. The exclusion is not permanent, however- in most circumstances, debtors must undergo the means test no more than 14 days after the 540-day period is up.

Bankruptcy and security clearance

Although military debtors often fear otherwise, filing for bankruptcy will not automatically impact their security clearance. Although financial responsibility is an important part of obtaining and maintaining clearance, your superiors will consider factors such as why you had to file (for example, an expensive divorce vs. a gambling addiction), your career history, and how well you performed your duties in the past. Filing for bankruptcy does not have to be a game changer.

If you are a member of the U.S. military and facing a difficult debt situation, then contact a New York bankruptcy attorney who can review your finances and recommend a form of debt relief that works for your circumstances. Jayson Lutzky is a Bronx attorney who handles Chapter 7 bankruptcy cases. He offers free in-office initial consultations to help you decide if bankruptcy is right for you. Call 718-514-6619 to set up an appointment today or visit to learn more.