If you are a disabled veteran or are on active duty, you might be entitled to special exceptions from requirements if you file bankruptcy. But if you’re like most, you want to know whether bankruptcy might affect your security clearance or, if you haven’t joined yet, your enlistment, before you take that step. While there is no hard rule that says your security, clearance will be affected by bankruptcy, large amounts of debt may. Your superiors will usually review issues with your security on a case-by-case basis, so it may be worthwhile to look into it with someone you trust. If you’re concerned you won’t be able to enlist, skip ahead to Will Bankruptcy Affect My Ability to Enlist in the military? Military Members and the Chapter 7 Means Test ExemptionTo qualify for Chapter 7 bankruptcy, you have to meet specific income requirements, and you’ll prove it by passing what is called the means test. You would typically include your military income in the means test. If you are a disabled veteran or are a member of the National Guard or Reservist, you might be exempt from passing the Chapter 7 means test. The exception is limited, however, and has several conditions you must meet. (If you’re not sure which chapter would be best for you, start by learning more about the differences between Chapter 7 and 13.) Disabled Veteran ExemptionIf you’re a veteran and have a disability, you don’t have to pass the means test if you incurred debts primarily during the following periods: Qualifying DisabilityTo take advantage of the means test exception, you must have a qualifying disability. You have a qualifying disability if: Active Duty: Limits and ExclusionsNot every disabled veteran who was injured while in the military will qualify for this exception. That is because the rules define “active duty” as full-time military service. It can include full-time training and attendance at military schools. Full-time National Guard duty is excluded from this definition. However, if you are in the National Guard, you could still be entitled to the means test exception on a different basis. National Guard or Reserve ExemptionIf you are a reservist or member of the National Guard, you might be able to opt-out of the means-testing requirement if: Veterans Benefits Might Be Exempt Assets in BankruptcyIf you receive veteran’s benefits, they might be exempt assets in your bankruptcy. If you live in a state that uses the federal bankruptcy exemption system and you choose to use the federal exemptions, then those benefits are exempt. If your state has opted out of the federal bankruptcy exemption system, then your state’s exemption laws might also protect your veteran’s benefits. Veterans benefits will be part of the income means test to determine your eligibility for bankruptcy unless you qualify for one of the means test exemptions discussed above. Pre-Bankruptcy Credit CounselingMost debtors are required to complete consumer credit counseling before filing bankruptcy. However, if you cannot complete the pre-bankruptcy credit counseling requirements because you are in a recognized military combat zone, then you are exempt from this requirement. Servicemembers Civil Relief ActThe Servicemembers Civil Relief Act of 2003 (“SCRA”) is a federal law that provides some protection to members of the military from debt collection actions. The SCRA prevents or postpones: Will Bankruptcy Affect My Ability to Enlist in the Military?A bankruptcy alone won’t prevent you from joining the military. But you must meet specific financial standards to enlist, and previous economic instability can be problematic. On the bright side, taking care of debt problems through bankruptcy can make someone a stronger military candidate. Finances When Enlisting in the MilitaryEach branch of the military has recruitment criteria that will consider your financial background. The requirements ensure that each branch complies with the Department of Defense requirement. The military examines your finances to ensure that you’re responsible, reliable, and trustworthy. Not only is it believed that financial background could contain indicators of these traits, but also that it’s essential to verify that you can live on a military salary. Another reason is that someone who struggles financially can be a security risk because of susceptibility to bribery and embezzlement. This factor will be scrutinized closely if a particular job requires a security clearance. Financial EligibilityAt some point during the recruitment process, the military will review your financial background. You might have to fill out an application for a Financial Eligibility Determination (FED). Some branches of service have stricter standards than others, and not all of them require you to fill out a form FED. During the FED process, or as a separate review, the military will examine your financial circumstances—including your credit history, current ability to pay your debts, and your ability to support yourself and your family. How Bankruptcy Might Affect Your Military EnlistmentIt’s not so much the bankruptcy itself that matters, but what it says about your financial circumstances and your character. Some bankruptcies might reflect negatively on the applicant; others might not. Bankruptcy Circumstances That Could Hurt Your Military ApplicationFiling for bankruptcy for less-than-honorable reasons can be a negative factor. Some potentially damaging bankruptcy issues could include: When Bankruptcy Might Help a Military EnlistmentStruggling to pay a debt that you can’t afford can mean years of delinquencies and negative items on your credit report. Often, bankruptcy can help someone improve credit history more quickly. By eliminating debts through bankruptcy, you can begin building a positive payment history and improve your debt-to-income ratio. If bankruptcy has helped you get your finances under control, and you demonstrate financial restraint after your bankruptcy, you might end up being a more reliable military applicant in the end. You’ll be less susceptible to corruption if you need a security clearance. Another way the military might also view your post-bankruptcy financial rehabilitation in a positive light is that it shows that you were able to solve your financial problems and are capable of self-improvement. Presenting Bankruptcy in a Favorable Light to RecruitersIf you filed bankruptcy in the past, use it to your advantage when you apply to enlist in the military. Explain to your recruiter and in the FED application, if applicable, the circumstances that caused you to file for bankruptcy. This could be especially compelling if you filed for a reason beyond your control, such as unemployment, divorce, death, or illness. If the circumstances were within your control, explain why they will not happen again. Most importantly, make clear that your past financial problems will not impact your service in the military. Will Bankruptcy Affect My Ability to Join the Military?Filing for bankruptcy won’t automatically disqualify you from enlisting in the military, and in fact, taking care of outstanding debt can be viewed positively. But, you’ll have to meet financial eligibility standards, and the circumstances leading up to your bankruptcy can affect: Bankruptcy and Your Security ClearanceWhether bankruptcy will have a negative impact on your security clearance or career advancement will depend on the branch of the military you want to join and the type of position you are looking for. Filing for Bankruptcy in the MilitaryThere are no legal restrictions that prevent military personal from filing for bankruptcy. While serving in the military, you have the same rights as a regular civilian to file for bankruptcy protection. When you join the military, there’s an expectation of you to maintain a decent standard of living. However, this doesn’t mean that you’re immune to financial hardships. Members of the military are often afraid of filing for bankruptcy because they are worried that it will interfere with their service or ruin their reputation. The reality is that you’ll be better off if you can maintain a strong financial situation. In fact, the military prefers that your finances be in order – even if that means filing for bankruptcy. Filing for bankruptcy can give you the opportunity to get back on your feet and can give you a fresh financial start. Servicemember’s Civil Relief ActThe Servicemember’s Civil Relief Act (SCRA) offers special protections when a member of the military files for Chapter 7 or Chapter 13 bankruptcy. These laws were put into place to help active military members focus on their duties rather than their financial situation. The SCTA gives courts the right to stay or postpone bankruptcy and non-bankruptcy proceedings while you are on active duty. The law is able to prevent a range of proceedings during the bankruptcy process that could be detrimental to members of the military such as default judgments related to the dischargeability of a debt, obligation discharge objections, debtor examinations and collection actions that may occur after the bankruptcy proceedings have finished. Special Protections and ExemptionsWhen civilians wish to file for Chapter 7 bankruptcy, they must pass the means test. The means test determines whether a debtor’s income is low enough to file for Chapter 7 bankruptcy. However, if you’re a disabled veteran, you may be exempt from passing the means test if your debts were mostly incurred during active duty or while performing activities related to homeland defense. If you’re a member of the National Guard or a reserve unit of the Armed Forces and were called to active duty or performed a homeland defense activity for at least 90 days after September 11, 2001, you may also be excluded from Chapter 7 means testing requirements. An experienced bankruptcy attorney will be able to help you determine whether you qualify for these special protections and exemptions. Filing for Bankruptcy May Affect Security ClearanceFiling for bankruptcy doesn’t automatically affect your security clearance. Whether your security clearance is affected depends on a number of factors including why you filed for bankruptcy, your job performance, your position in the military and more. Having large amounts of debt may affect your security clearance, but in some cases, filing for bankruptcy can help you because it shows you’re taking a step in the right direction. However, in order to see classified information, you will have to obtain high-level security clearances that require extensive background checks. Unfortunately, this could mean that bankruptcy will have a negative impact on your ability to work in these positions. If you’re serving in the military and are considering filing for bankruptcy, the best thing you can do is to meet with an experienced bankruptcy attorney. There are special protections and exemptions that exist for military personnel who are facing bankruptcy, and a bankruptcy attorney will be able to explain these to you. Military Bankruptcy LawyerWhen you need a Military Bankruptcy, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
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8833 S. Redwood Road, Suite C West Jordan, Utah 84088 United States Telephone: (801) 676-5506
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