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Is There a Military Exception to the Chapter 7 Means Test?

Active Duty Reservists and Disabled Vets Eligible for Chapter 7 Bankruptcy Means Test Exemption

military exception to the Chapter 7 means test

The Financial Hardship of Active Military Duty or Disability Is Recognized in the US Bankruptcy Code

There is a limited exception or exclusion from the Chapter 7 bankruptcy means test available for some military service-members—but only some. It is based upon the disruption that a call-up to active duty from civilian working life can have upon the finances of military reservists and upon the often permanent disruption that a medical disability resulting from service in the U.S. Armed Forces can have upon a service-member or former service-member’s finances.

Thus, the bankruptcy means test “exception” applies only to reservists who have been called to active duty and to veterans who became disabled during their time of service.

There is no military exception to the Chapter 7 means test for full-time, career service-members. (However, active duty personnel currently engaged in combat zones are exempted from the silly and tedious pre-filing credit counseling requirement.)

Exception #1: Temporary Exception from the Means Test for Reservists Called to Active Duty

The first military exception to the Chapter 7 means test comes by way of some legislation signed into law in 2008 called the National Guard and Reservists Debt Relief Act of 2008. This Act amended the Bankruptcy Code (the Federal law governing the whole bankruptcy process) to stipulate that there is a temporary exclusion from the means test for military reservists who are called to active duty for a minimum of 90 days.

However, this exception expires 540 days from the date of release from active duty of the reservist, or 540 days from the date that the reservist is no longer performing a “homeland defense activity.” If the exception expires while the reservist’s Chapter 7 bankruptcy case is still pending and within the timeframe allowed to the U.S. Trustee (the Department of Justice division of the Federal government responsible for “gate-keeping” Chapter 7  bankruptcy eligibility) to file a motion to dismiss, the service-member may still be required to file a means test in the 11th hour.

Thus, the timing of the filing is crucial to the use of this means test exception.

Exception #2: Disabled Veterans

There is a less temporary military exception to the Chapter 7 means test available for disabled veterans whose indebtedness occurred primarily during a period in which he or she was on active military duty or actively performing a “homeland defense activity.”

Clearly, the definitions of “disabled” and of “homeland defense activity” are crucial here to the applicability of this exception.

Under 38 U.S. 3741(1), a “disabled veteran” is a veteran who is entitled to compensation under laws administered by the Secretary for a disability rated at 30 percent or more, or a veteran whose discharge or release from active duty was for a disability incurred or aggravated in line of duty.

 Under 32 US 901(1), a “homeland defense activity” is “an activity undertaken for the military protection of the territory or domestic population of the United States, or of infrastructure or other assets of the United States determined by the Secretary of Defense as being critical to national security, from a threat or aggression against the United States.”

This is a definition with a very wide scope, particularly given the ever-expanding definition of “national security” by the past 2 executive administrations in the U.S., and arguing this half of the disability exception with a U.S. Trustee attorney should not be all that difficult with a good bankruptcy lawyer assisting you.

Military Exception to the Chapter 7 Means Test: The Bottom-Line

The bottom-line with regard to the military exception to the Chapter 7 means test is that you need an experienced bankruptcy attorney to assist you in determining whether either of the exceptions applies to your case and to defend the use of one of the exceptions if needed from a U.S. Trustee motion to dismiss. It is tempting, always, to try and save a few bucks by skipping the hiring of a bankruptcy attorney when you’re already hard-pressed for financial resources, but, without one, you will have a very difficult time asserting your rights within the bankruptcy process when pressed.

If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.

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