Michael L. Detzky Consumer Bankruptcy Law Blog on Lawyers.com

On October 20th, 2008, President Bush signed into law the "National Guard and Reservists Debt Relief Act of 2008," P.L. 110-438. This legislation makes debt relief under Chapter 7 of the Federal Bankruptcy Code more readily available to members of the Armed Forces Reserves or National Guard who have been mobilized to active duty for a period of more than 90 days since September 11th, 2001 by waiving the dreaded "Means test" calculation.

The "Means Test" has been a part of the consumer bankruptcy practice since October 17, 2003. It requires that any individual contemplating filing Chapter 7, first demonstrate that the total family income for the last six months is at or below the "median income" for a family of like size in the same State. If the individual or family income is above the "medium income" there is a presumption that it would be "an abuse" of the bankruptcy laws if that individual or family filed for bankruptcy relief under Chapter 7.

There is usually a great disparity in income when members of the Reserve or National Guard are called to active duty. Many reservists experience pay cuts when they commence active duty and consequently suffer from financial hardship which may necessitate a bankruptcy filing. Others, see and unanticipated increase in pay during mobilization with the receipt of combat and hazardous duty pay and low expenses.

The Act's protection extends during the period of active duty and for 540 days (18 months) after release from active duty. The new law is prospective and applies only to new Chapter 7 cases filed after the effective date of the act.