US Military Bankruptcy: Everything You Need to Know

What does the Servicemembers Civil Relief Act (SCRA) say about military personnel who file for bankruptcy? This article will discuss the SCRA protections afforded to military members facing US military bankruptcy. After reading this article, Armed Forces members will have a better idea of what to do if they find themselves in this tricky situation.

The Role of the Servicemembers Civil Relief Act on Bankruptcy

The SCRA and bankruptcy filing rules are similar to those regarding the SCRA and civil matters. How the SCRA affects filing bankruptcy is identical to how it affects civil proceedings.

Bankruptcy Chapters

This is reflected in both Chapter 7 bankruptcy cases and Chapter 13 bankruptcy cases. Filing for Chapter 7 means those serving in the military must liquidate all their assets to be freed of their obligations.

Meanwhile, when active-duty service members file for Chapter 13, they may keep some of their assets while they repay a portion of their debt over a period. Often, receiving credit counseling is part of filing for bankruptcy protection, the idea being that military members might avoid further severe financial problems if they have access to proper education and support.

Unique Circumstances For Service Members

The unique financial circumstances that service members face may render it challenging for them to manage debt.

Housing Allowances

Service members who live outside the base are usually given housing allowances. While housing allowances can help, they are also subject to change based on deployment status, making it challenging for service members to budget and manage debt.

In some cases, the housing allowance amount may be reduced or increased, making it essential for service members to review their financial situation and adjust their budget accordingly.

Disability Benefits

The number of disability benefits received can vary and may be limited in scope or subject to change based on a service member’s medical condition or other factors. This variability can make it challenging for service members to manage their debt and plan for the future.

Overseas Deployment

Service members may find it challenging to manage their finances from a distance. Service members overseas must consider these unique financial challenges when planning their finances and seeking debt relief.

Separation Pay

Separation pay is subject to taxes, which can reduce the amount received and make it difficult to manage debt. Service members separating from the military must consider this tax burden when planning their finances.

Readjustment Allowances

Like separation pay, readjustment allowances may also be subject to taxes. Service members must evaluate this tax burden when managing their finances.

Family Separation Allowance

Service members separated from their families because of deployment or training may be eligible for a Family Separation Allowance (FSA). This financial benefit helps cover expenses related to the separation, such as travel, communication, and other essentials. FSA can provide valuable financial support to service members and their families during separation, helping reduce financial stress and improve overall well-being.

General Provisions Regarding Military Bankruptcy

Find Out If Someone Is Lying About Military Service

Essentially, there are three primary areas of coverage under the SCRA:

  • Protection against the entry of default judgments
  • Stay of proceedings where the servicemember has notice of the proceeding
  • Stay or vacation from execution of judgments, attachments, and garnishments. 50 USC app. §§ 521, 522 and 524.

According to Section 521 of the SCRA, specific procedures must be followed in all civil proceedings to protect servicemember defendants against the entry of default judgments. These procedures include the following:

  • If a military service member is in default for failure to appear in the action filed by the plaintiff, the plaintiff must file an affidavit (1) with the court before a default judgment may be entered. The affidavit must state whether the defendant is in the military or the plaintiff could not determine whether the defendant is in the military.
  • If, based on the filed affidavits, the court cannot determine whether the defendant is in the military, it may condition entry of judgment against the defendant upon the plaintiff’s filing of a bond. The bond would indemnify the defendant against any loss or damage incurred because of the decision if the judgment is later set aside in whole or in part.
  • The court may not order entry of judgment against the service member if they are in the military until after the court appoints an attorney to represent the service member.
  • If requested by counsel for a servicemember defendant, or upon the court’s motion, the court will grant a stay of proceedings for no less than 90 days if it determines that (1) there may be a defense and the defense cannot be presented without the defendant’s presence; or (2) after due diligence the defendant’s attorney has not been able to contact the defendant or otherwise determine if a meritorious defense exists.
  • In its discretion, the court may make further orders or enter further judgments to protect the defendant’s rights under the SCRA.
  • Suppose a judgment is entered against the defendant while he or she is in military service or within 60 days of discharge from military service, and the defendant was prejudiced in making his or her defense because of his or her military service. In that case, the court may open the judgment upon application by the defendant, and the defendant may then provide a defense. However, before the judgment may be opened, the defendant must show that he or she has a meritorious or legal defense to some or all of the action.

A person covered by the SCRA who has received notice of a proceeding may ask the court to stay the proceeding at any time before final judgment in a civil action. The court may also order a stay on its motion. The court may grant the servicemember’s stay application.

It will stay the proceeding for at least 90 days if the application includes: (1) a letter setting forth facts demonstrating that the individual’s current military duty requirements materially affect the servicemember’s ability to appear together with a date when the servicemember will be able to appear; and (2) a letter from the servicemember’s commanding officer stating that the servicemember’s current military duty prevents their appearance and that military leave is not authorized for the servicemember. The court has the discretion to grant additional stays upon further application.

The court may, on its motion and must, upon application: (1) stay the execution of any judgment or order entered against a servicemember; and (2) vacate or stay any attachment or garnishment of the servicemember’s property or assets, whether before or after judgment if it finds that the servicemember’s ability to comply with the judgment or garnishment is materially affected by military service.

The stay of execution may be ordered for any part of the servicemember’s military service plus 90 days after discharge from the service. The court may also order the servicemember to make installments during any stay ordered.

What Active Duty Service Members Should Do?

Everyone goes through financial difficulties, but conferring with an experienced bankruptcy lawyer would be ideal. Fortunately, the military has resources that can give service members access to people who are experts on the legal protections of the SCRA and more.

Before going to a law firm, service members might want advice from other military community members. Many other service members have had problems with personal loans, and they can give a good insight into what to do next.

Military service members should also maximize the resources at their disposal for free. The SCRA isn’t the only law that grants service members certain protections in case they file for bankruptcy. That’s why service members should confer with their military branch on the best actions to take when they face financial stress.

While the court proceedings are paused for 90 days, military members should exhaust their resources to solve their bankruptcy problem. They can get sound advice from their superiors.


Sometimes, financial hardships lead people to file for bankruptcy, and active-duty service members are not exempt from this. Fortunately, the SCRA provides some protections to help them navigate this challenge. Determining one’s active duty status is key, and the SCRACVS can help with this. Click here and start verifying the active duty status.


What is the difference between the Military Lending Act and SCRA?

The Military Lending Act protects servicemembers and their dependents for credit extended while the servicemember serves on active duty. Meanwhile, the SCRA protects servicemembers and their dependents with obligations incurred before entry into active duty.

Do you get money back from SCRA?

The SCRA requires a refund following any request for a lower interest rate, provided the loan was taken out before the service member entered active duty.

Does bankruptcy clear DFAS debt? 

Debt collection is stopped once you file a bankruptcy petition and notify the debt collectors.

Can I file for bankruptcy in the Air Force? 

Yes, there are no punishments in the Air Force if a service member files for bankruptcy.

Does bankruptcy affect the military?

Bankruptcy filing won’t hinder you from enlisting or serving in the military.

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