Military personnel can file for bankruptcy just like civilians, even if their debts include a Military Star Card. The Army and Air Force Exchange Service issue this credit card to active duty and retired service members, employees of the U.S. Department of Defense and other government officials. Unlike traditional credit cards, it can only be used to make purchases from military exchanges and stores. To discharge this debt in bankruptcy, military personnel must include it on the list of debts they submit to the bankruptcy court.
Military Star Card Is Dischargeable
The Military Star Card is unsecured credit card debt, meaning it is not backed by collateral such as a house or car. Unsecured debts are fully dischargeable in bankruptcy proceedings. Individual service members, like civilians, typically file for either chapter 7 or chapter 13 bankruptcy.
Chapter 7 Bankruptcy
With a chapter 7 bankruptcy, the service member gives up assets that are not exempt from seizure to pay off as much of the his debt as possible. Any remaining debt, including that owed on a Military Star Card, is discharged, meaning the service member is no longer responsible for it. To qualify for chapter 7 bankruptcy, service members must pass a means test, showing a current monthly income below a statutory financial threshold for a family of similar size. The required median income to qualify for chapter 7 bankruptcy varies by state and changes often.
Means Test Exemptions
Disabled veterans whose debts were incurred while engaged in homeland defense or on active duty are not required to take the means test to qualify for chapter 7, as they automatically qualify. However, a disabled veteran must be rated at least 30 percent disabled by the Veterans Administration or discharged due to a disability incurred in the line of duty. Reservists and National Guard members are also exempt from the means test if they are called to homeland defense or active duty for at least 90 days. The exemption lasts for the full duration of their homeland defense or active duty and an additional 540 days after it ends. This means guardsmen and reservists have nearly 1 1/2 years to file for bankruptcy and discharge their debts without fearing their income will be too high to qualify.
Chapter 13 Bankruptcy
If a service member doesn't qualify for chapter 7, she may file for chapter 13 bankruptcy. With chapter 13, the service member doesn't give up any assets, but instead enters into a repayment plan that lasts three to five years. Priority debts, such as child support, are paid first. Secured debts, such as mortgages, must be kept current and overdue amounts paid off. Any or the service member's remaining funds are then put toward the Military Star Card balance and other unsecured debts. If any amount remains due on the card once the repayment plan ends, it is discharged.
- Bankruptcy Law Firms: Military Star Credit Card Debt in Bankruptcy
- U.S. Courts: Chapter 7
- U.S. Courts: Chapter 13
- Nolo: Bankruptcy for Military Personnel
- Bankruptcy Law Firms: The Means Test and Other Eligibility Issues in Chapter 7 Bankruptcy
- Nolo: Unsecured Debt in Chapter 13: How Much Must You Pay?
- Nolo: Debts Discharged at the End of Chapter 13 Bankruptcy
- Southern California Law Advocates, Riverside Bankruptcy Blog: Can a Tax Refund be Taken for Military Star Card?
- Harborstone Law Group: Avoiding the Bankruptcy Means Test
- Harborstone Law Group: Bankruptcy and Other Laws Protect Financially Stressed Servicemembers
- Dan Nunley, Tulsa Oklahoma Bankruptcy Attorney: Disabled Veterans and the Means Test
- U.S. Courts, District of Idaho: Chapter 7 Statement of Current Monthly Income and Means-Test Calculation
- Nolo: Completing the Means Test (Form 22A) in Chapter 7 Bankruptcy
- Law Office of David M. Goldman, Jacksonville Bankruptcy Attorney Blog: National Guard and Reservist Debt Relief Extension Act of 2011
- Rick Mitchell Law: Military Personnel Exempt from Bankruptcy Means Testing
- Internal Revenue Service: Part 25, Chapter 6, Section 1, 188.8.131.52 (10-01-2001), What is a Statute of Limitation
- Hilla Law Firm: New Michigan Bankruptcy Means Test Numbers for April 1, 2014
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