As a Maryland Bankruptcy lawyer based in Baltimore I have assisted my share of members of the military navigate the murky waters of bankruptcy.
The numbers of military personnel in Maryland makes sense given the high concentration of military installations in the areas of Maryland close to Washington, DC. These numbers have increased dramatically with the recent base realignment program. As you may know, Maryland could see up to another 50,000.00 military personnel stationed here in the next few years.
Because of this, I often see members of the military and their families who are experiencing debt issues and are considering bankruptcy.
Military members just like civilians have to be eligible to quality to file a chapter 7 bankruptcy case. A chapter 7 is commonly known as a liquidation bankruptcy because the debtor often has no assets or will surrender whatever he or she has to satisfy the debts owed. There is no payment plan.
This is very different from a chapter 13 bankruptcy case. In a chapter 13, the debtor propose a repayment plan and therefore it is commonly known as a reorganization or a an income earners bankruptcy. The amount of debt paid back depends on several factors and can be as little at less than 10% or as much as 100%.
Most military members are familiar with the following pay structures.
- Basic Pay.
Basic Pay is just that pay based on rank etc. This is subject to income taxes and payroll taxes as well.
- Basic Allowance for Subsistence (BAS).
BAS pays for the military personnel’s meals. Several factors apply when determining this amount such as nature of assignment and ability to obtain meals from a government facility. For more information go to: Military.com
- Basic Allowance for Housing (BAH).
BAH is the government’s way of ensuring that service personnel have adequate housing. As you can imagine, real estate and rental rate are controlled by local factors and therefore the BAH is based on geographic location among other factors. Pay grade and the number of dependents also play a role in determining the amount of BAH each member receives. For more information go to:Military.com
Means Test: Qualifying for a Chapter 7
Military personnel are required to undertake the means test to qualify for a chapter 7 unless they fall within the narrow exceptions provided for in the law.
The exceptions are right on the first page of the means test document.
- Disabled veterans are exempted from taking the means test if the debts if they fit the following criteria:
Indebtedness occurred primarily during a period in which I was on active duty (as defined in 10 U.S.C. §101(d)(1)) or while I was performing a homeland defense activity (as defined in 32 U.S.C. §901(1))
- Members of the Reserves or National Guard who fit the following criteria:
Members of a reserve component of the Armed Forces and members of the National Guard who were called to active duty (as defined in 10 U.S.C. § 101(d)(1)) after September 11,2001, for a period of at least 90 days, or who have performed homeland defense activity (as defined in 32 U.S.C. § 901(1)) for a period of at least 90 days, are excluded from all forms of means testing during the time of active duty or homeland defense activity and for 540 days thereafter (the “exclusion period”).
For military personnel who do fit the above criteria then they have to turn to special circumstances for one last effort to rebut the presumption of abuse and qualify to file a chapter 7.
If they still cannot qualify then a chapter 13 can offer relief from garnishments and other collection activity by stretching the payment term to five years while basing the monthly payment on your disposable income. This can be particularly helpful if creditors are garnishing the maximum 25% which depending on your pay could be as high as a $1,000.00 or more.
This is just a brief overview of a complex issue. Always consult a lawyer before taking action.
Joseph K. Githuku
9407 Harford Rd
Baltimore, MD 21234
Disclaimer: This article is for informational purposes only. No attorney-client relationship is created by this article. Always consult a bankruptcy attorney before taking any action because each case is different.