Published by Mark

Special Treatment For Servicemembers In Bankruptcy

February 13, 2009 at 9:50 am

U. S. government law provides special protection for members of the military who are in debt. In my earlier blog, “Putting Off Debt Problems For Families Of Service Members”, I talked about SCRA, the Servicemembers’ Civil Relief Act.

That law allows a “stay” or postponement of any legal action or credit collection effort while the debtor is in the service and for at least 90 days following discharge from the military. There are several aspects of “special privilege”, including:

* Penalties on debt don’t accrue during the stay.

* In most instances a landlord can’t evict the servicemember’s family from their primary residence.

* Even if wages were in the process of being garnished, or assets in the process of being seized, all those actions will be deferred.

* If a servicemember is transferred to a different city or country, his or her apartment lease or car lease can be cancelled.

Bankruptcy filers, as I’ve explained in earlier blogs, go through a “means test” to see if they qualify to file bankruptcy. Not only active service members, but national guardsmen and women and reservists are exempt from the test, giving them more time to get their finances in order and prepare to file for bankruptcy protection.

As times have gotten harder in Hoosierland, our state legislators have been proposing expanding state benefits to military veterans and their families. Purple heart recipients who entered the military after 9/ll receive free tuition. A new bill would expand that benefit to all Indiana veterans. A second bill increases the exemption from state income tax to $10,000 this year, $15,000 in 2011, $25,000 in 2013, and then total state income tax exemption by 2015 for all veterans.

The idea behind all this special treatment and these special exceptions to bankruptcy law is for our servicemembers to be able to focus their full attention on defense and not spend time worrying about their finances. Remember, though, the SCRA act puts off debt problems, but, unlike bankruptcy, can’t eliminate or discharge debt. The concession for servicemembers and veterans that most relates to my work is that SCRA allows them to have more income and still qualify to file Chapter 7 bankruptcy. Seems like the least we can do!

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