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Recently Retired from Military and in a Big Debt Hole From Job Loss. – Matt

“Dear Steve,

I am recently military retiree (Jun 2012) who was making around $135K, upon retirement and losing my civilian job a few months ago I found myself in a real hole living off about 40% of $135K or about $48K and a small teaching job of $900 per month. TO make a long story short we have a short sale contract on our expensive home ($2500 per month) and moved to Florida for cheaper living. (About 5 months ago) I have about $64K in cc debt, a couple of cars, FYI looks like banks will write off the deficiencies for the first mortgage – but not on second mortgage of $42K(neither mortgage is VA,FHA etc), – so It looks like I’ll be stuck with about $95K unsecured – one cc company has charged off $10K. As of 1 December income improved by $2K per month thanks to VA disability rating – kind of improving our situation substantially.

Spoke to Bankruptcy attorney about Chapter 7 – income is now to high because of sudden good news from VA – so I Asked about Service Connected exception for Disabled Veterans – for Chapter 7 because the situation is really screwed up and no way can I catch up, he still insists on a Chap 13. Under this option I’d end up paying back about $800-$1200 per month for five years – then the discharge occurs.

I’m wondering if Debt Settlement is the way to go here for the cc and the second mortgage, but also heard that I can’t get a hardship on my taxes unless I file a Bankruptcy – I’ve been told the government exceptions for the HAMP and the tax write-offs for mortgage deficiencies end this month. I’d kind of like to invoke the Disabled Veterans Clause and file a Chapter 7 since almost all of my debt was incurred on active duty – but my attorney is pushing for a Chapter 13.

Any advice – kind of complicated but situation has improved substantially.

Matt”

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The Answer

Dear Matt,

You are correct on two fronts, it’s a screwed up situation, and a bit out of the usual.

If you are a disabled veteran you MAY be exempt from the means test. In that case a chapter 7 would be the best way to go to hand the house back and get the legal fresh start you are entitled to.

The bankruptcy attorney you spoke with might be unfamiliar with the exception.

Disabled veterans exempt from the bankruptcy means test. Under the Bankruptcy code, disabled vets are exempt from means test if they meet a specific definition of disability. (11 U.S.C. § 707(b)(2)(D)) To qualify, the vet must be either (a) rated by the Veteran’s Administrations as at least 30% disabled or (b) discharged as a result of a disability incurred in the line of duty. (38 U.S.C. 3741(1))

(11 U.S.C. § 707(b)(2)(D))

(D) Subparagraphs (A) through (C) shall not apply, and the court may not dismiss or convert a case based on any form of means testing—

  • (i) if the debtor is a disabled veteran (as defined in section 3741 (1) of title 38), and the indebtedness occurred primarily during a period during which he or she was—
    • (I) on active duty (as defined in section 101 (d)(1) of title 10); or
    • (II) performing a homeland defense activity (as defined in section 901 (1) of title 32); or
  • (ii) with respect to the debtor, while the debtor is—
    • (I) on, and during the 540-day period beginning immediately after the debtor is released from, a period of active duty (as defined in section 101 (d)(1) of title 10) of not less than 90 days; or
    • (II) performing, and during the 540-day period beginning immediately after the debtor is no longer performing, a homeland defense activity (as defined in section 901 (1) of title 32) performed for a period of not less than 90 days; – Source

If that exception sounds like it is related to your situation, which it might just possibly, I would urge you to click here to find a local bankruptcy attorney and get a second opinion.

It’s quite alright and appropriate to get a second opinion about your situation. Nobody is going to get their feelings hurt and we can get to the bottom of this.

I’d like for you to be sure and come back and update me in the comments below after you meet with the second bankruptcy attorney.

Before we focus on anything else, let’s get that second opinion done. It certainly sounds like that would be the most logical way to go and the preferable path.

I’ll also post this question out to some bankruptcy lists and ask some attorneys to come and comment on this question as well.

Please post your responses and follow-up messages to me on this in the comments section below.

Big Hug!

Recently Retired from Military and in a Big Debt Hole From Job Loss.   Matt
Get Out of Debt Guy – Twitter, G+, Facebook

If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.

Recently Retired from Military and in a Big Debt Hole From Job Loss. - Matt by

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Cathy

    here are too many moving pieces here for reliable advice at a distance. Note the exception for disabled vets applies only if the debt was incurred while on deployment. The means test looks backward to measure ability to repay, so timing may be important. Further, local judicial attitudes and practices influence whether a new job will trigger claim of abuse. The only solution is a second opinion with the most experienced and capable bankruptcy attorney in the area where you expect to file.

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