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Financial Hardships and the Military: You Do Have Options

The military lifestyle is incredibly stressful. Service members face frequent moves, extended time away from home, and other hardships that put a strain on their finances. The debt-to-income ratio of military members is about 10% higher than civilians, as a result.

If you face an uphill financial battle, you do have options. Discover how your service can help and affect your ability to move past a financial hardship. 

Servicemembers Civil Relief Act

Review the Servicemembers Civil Relief Act (SCRA) before you move straight towards bankruptcy. The SCRA provides protection for both legal and financial matters. Foreclosure protection, a judgment delay, and reduced interest rates are some of the benefits extended. 

If bankruptcy is on your radar due to foreclosure, the SCRA can provide you extra time to get control of the matter. As part of the SCRA, the foreclosure or seizure of property is restricted for a specific period. 

There are qualifications for SCRA protection, however. For instance, foreclosure protection is only valid for mortgages established before you joined the military. For reservists, the loan should predate your active duty activation date. 

The SCRA can also temporarily lower the interest rate on your mortgage to 6%. An attorney can tell you if you qualify for protection and for what period, as well as help advocate for the benefits of the SCRA on your behalf. 

Means Test

Step one of the bankruptcy process is the means test if you plan to file chapter 7. Chapter 7 bankruptcy involves debt forgiveness, and you must prove you are unable to repay at least a portion of your debts. 

The test consists of a review and comparison of your finances, household size, and expenses. If you do not meet the guidelines, you are ineligible for Chapter 7 declaration. 

Disabled veterans who incurred much of their debt while serving can receive a means test waiver. To obtain a waiver, your disability rating must be at least 30%. If you received a medical discharge for an injury that was a direct result of your military service, you may qualify as well. 

In addition to a means test waiver, you will receive an asset exemption for all veterans' benefits, including your military pension. North Carolina does not allow creditors to target veterans' benefits to help cover the repayment of any unsecured debts. Your veterans' benefits are included as income, however, as part of the means test. 

Mortgage Modification

Think long and hard before you file for bankruptcy. Filing for bankruptcy can affect your ability to hold a security clearance. Your ability to serve within your MOS, and your promotion opportunities may be affected as a result. 

Financial security and responsibility are a large part of the clearance screening process. Bankruptcy may send up a red flag. Consider a debt hardship alternative, such as a mortgage modification, first. 

A mortgage modification can lower your mortgage payment to help you avoid foreclosure altogether. As a result, you won't put your security clearance and your ability to earn a competitive income in the military at risk. 

Keep in mind, mortgage modifications are not the same as the foreclose or interest benefits extended through the SCRA. A mortgage modification can last for the life of the loan.

Facing a financial strain is an overwhelming process. You don't have to fight the battle on your own. Speak with an attorney who can help you work through the bankruptcy or mortgage modification process. 

At the office of W. Mack Rice, P.A. Attorney at Law, we are happy to have this conversation with you whether you're retired, on active duty, or a reservist. Call our office to set up a consultation today.

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