354 FW/JA

Office of the Staff Judge

Advocate

Eielson AFB, Alaska

354 FW/JA

Legal Assistance & Preventive

Law

Pamphlet Series

As of 3 January 2017

INTRODUCTION

Bankruptcy is a set of federal laws and rules that can

help individuals who owe more debt than they can

pay. Bankruptcy cases cannot be filed in state court.

Bankruptcy laws help people who can no longer pay

their creditors get a fresh start by liquidating their

assets to pay their debts, or by creating a repayment

plan. At the same time, a trustee of the court can

sell the person’s property (unless it’s exempt) and

divide the proceeds to pay off the person’s creditors.

SHOULD I CONSIDER BANKRUPTCY?

It is your statutory right to declare bankruptcy.

However, the exercise of that right has

consequences. The Air Force views bankruptcy in a

strictly neutral light. In fact, it is illegal for any

federal or state agency to discriminate against you

for the exercise of your right to declare bankruptcy.

However, this does not mean that filing for

bankruptcy won’t affect your military career. It can

affect your security clearance as well as other

aspects of your military career specific to your

career field. Additionally, private agencies can, and

do, discriminate against people who declare

bankruptcy.

The decision you must make is whether or not the

consequences in terms of lost credit and

discrimination outweigh the benefits. Those

benefits can be quite substantial. Virtually all your

unsecured debt will be wiped out. You will have a

fresh start. On the other hand, you will have at least

seven years of bad credit. Make your decision

carefully.

EXEMPT PROPERTY IN ALASKA

Under the Bankruptcy Code, “exempt property” is

defined as certain property owned by an individual

debtor that the Bankruptcy Code or applicable state

law permits the debtor to keep from unsecured

creditors. The availability and amount of property

the debtor may exempt depends on the state the

debtor lives in. Debtors who file bankruptcy

petitions in Alaska may claim either state or federal

exemptions. Alaska state law provides for the

following exemptions:

 Up to $54,000 equity in a house. AS §

09.38.010.

 20% of a permanent fund dividend.

AS § 09.38.015 & AS § 43.23.065.

 The interest of the individual in a retirement

plan and the money or other assets payable to

the individual from a retirement plan.

AS § 09.38.017.

 Certain household items provided the total

value is $3,000 or less, which includes

household goods, wearing apparel, books,

musical instruments, family portraits, and

heirlooms of sentimental value to the

individual. AS § 09.38.020(a).

 One motor vehicle to the extent of a value not

exceeding $3,000 if the full value of the vehicle

does not exceed $20,000. AS § 09.38.020(e).

 With some limitations, unmatured life

insurance and annuity contracts owned by the

individual. AS § 09.38.025.

 The individual debtor’s weekly net earnings not

to exceed $350. AS § 09.38.030.

Your property is valued at the time of filing; not at

the time you purchased it. It is assessed at fair

market value, which is the amount someone would

pay for your property if it were to be sold.

Additionally, in some cases, a married couple may

be able to claim a double exemption amount.

There are exceptions to the exemptions if you owe

child support, spousal support, or state and federal

taxes. To satisfy these debts, you might be forced to

sell exempt property.

BANKRUPTCY

HOW DOES BANKRUPTCY WORK?

Bankruptcy begins by filing a petition in federal

bankruptcy court listing your debts and property.

The filing of the petition automatically prevents, or

“stays,” debt collection actions against the debtor

and the debtor’s property. A bankruptcy trustee

then holds a hearing to review the petition,

determine your debts, and plan repayment.

Non-exempt property may then be sold and the

proceeds divided among the creditors. Property

worth more than the exempt amount may be sold

and the exempt amount returned to you. For

example, if you own a house worth $120,000, the

trustee can sell the house and give you back

$54,000, the exempt amount.

Later, a second hearing will be held where you may

receive a final discharge from your debts.

WILL BANKRUPTCY CANCEL ALL DEBTS?

No, not all debts are discharged. Therefore, the

debtor must still repay the nondischargeable debts

after bankruptcy. The most common types of

nondischargeable debts are debts for spousal or

child support, state or federal taxes, most student

loans, and any debts that you failed to list in your

bankruptcy petition. Also, any debts procured by

fraud will not discharged by bankruptcy.

Bankruptcy may not cancel “secured debts.” A debt

is secured if you gave the seller or the money-lender

the right to repossess the property or goods used as

collateral.

If you are married and your debts arose during the

marriage, both spouses need to file bankruptcy or all

the debts will be transferred to the other spouse.

BANKRUPTCY AND CREDIT

Not all creditors react the same way to bankruptcy,

but your credit will be hurt. This does not mean that

you will not be able to obtain credit. Some

companies extend credit to individuals that have

declared bankruptcy because they know that you

can only file bankruptcy once every six years.

However, the interest rates on such credit may be

abnormally high.

ALTERNATIVES TO BANKRUPTCY

Contact your creditors, explain the situation, and ask

if they will agree to restructure your debts so that

you can meet the revised payments.

You can consult with a “Consumer Credit

Counseling Service” which will assist you in finding

a way to pay your debts and help negotiate with

your creditors. This is a non-profit service that

charges a modest fee to assist you.

Another alternative is a “Debt Adjustment Plan”

under Chapter 13 of the Bankruptcy Code. Under

this court-controlled plan, debtors are allowed to

pay their bills through the court over a specific

period of time. During this time the law forbids

creditors from starting or continuing collection

efforts.

WHAT NOT TO DO

Avoid finance companies that offer debt

consolidation plans. Many of these companies

charge high interest rates.

This pamphlet is for basic information

on bankruptcy as it relates to military

personnel stationed in Alaska. It is not

intended to take the place of legal advice

from a Judge Advocate. There may be

important exceptions in some states to

the information presented here. Please

contact the 354th Fighter Wing Legal

Office for questions and further

information.

354 FW/JA

Tel: (907) 377-4114 / DSN 377-4114