Need for protection?
As a member of the U.S. Armed Forces (a commissioned officer or an enlisted person in any regular or reserve unit under control of the Secretary of Defense, Army, Navy, or Air Force, or in the Coast Guard), you don’t want to be worried about your financial affairs while you’re on active duty in service to your country. Especially if you’re a recalled reservist accustomed to higher-paying civilian employment, you might discover that your active-duty military paycheck doesn’t quite meet all of your expenses. Will your family be on the street because they’re evicted from an apartment you can no longer afford? What happens if you can’t meet your debt payments? Could you lose your home to foreclosure?
Civil Relief
Based on Congressional legislation dating back to the Civil War, the Soldiers’ and Sailors’ Civil Relief Act of 1940 (SSCRA) limited the civil actions that could be taken against you while a servicemember was serving on active duty. Because there was no provision for the Act to expire, its coverage has been uninterrupted since its passage. Amendments to it (most recently in 1991 during the Gulf War) ensured that its protection kept pace with the needs of a changing military in a changing world.
The Servicemembers Civil Relief Act (SCRA), signed into law on December 19, 2003, revises the SSCRA. The SCRA revisions primarily (1) clarify the language used in the Soldiers’ and Sailors’ Civil Relief Act and (2) incorporate the effects of judicial interpretations of the original law made in the decades since it was first passed.
Tip: When referring to the SSCRA as revised by the SCRA, this article refers to the “Act.”
Tip: The Act also protects members of the National Guard called (at the request of the U.S. President or Secretary of Defense) to state active duty in response to a federal emergency if the period of active duty lasts over 30 days.
The Act’s protection generally falls into two categories:
- Delays of civil litigation proceedings (e.g., bankruptcy, divorce hearings) in circumstances where military responsibilities preclude the possibility of making a court appearance
- Relief from financial obligations, particularly those incurred prior to beginning active duty, when active duty has materially affected a servicemember’s ability to satisfy those obligations
Caution: The Act’s protection isn’t always automatic; in some circumstances, you must request it if you wish to invoke it.
Termination of a lease
If you’ve leased premises that you (or your dependents) have used for professional, business, or dwelling purposes prior to beginning active duty, you may terminate your lease early if:
- You executed the lease and then entered military service while the lease was still in effect, or
- You executed the lease while in military service and then received orders to go to a new permanent duty station or to deploy as part of a military unit for no less than 90 days
The Act stipulates that you must give your landlord a written termination notice after you receive your orders. The landlord must refund any unapplied rent you may have paid in advance, and a refund of your security deposit cannot be withheld solely because you’ve terminated the lease prematurely.
If you have leased a motor vehicle, you may terminate the lease if:
- You executed the lease and then were called to active duty for a period of no less than 180 days, or
- You executed the lease and then were called to active duty for a period of less than 180 days, but then (without a break in service) received orders extending your active duty to no less than 180 days, or
- You entered the lease while on active duty and then received orders to go to a new permanent duty station outside the continental United States, or to deploy as part of a military unit for no less than 180 days
To terminate this type of lease or rental agreement, you’re not required to prove that your ability to meet the contractual obligation has been materially affected by your call to active duty.
Eviction protection
If you lease or rent property as a dwelling and your rent doesn’t exceed a monthly amount that is indexed for inflation, the Act provides that you or your dependents may not be evicted without a court order. If you receive an eviction notice, you must request the Act’s protection from the court. If the court finds that your military service materially affects your ability to pay your rent in a timely fashion, the judge may order a postponement of the eviction for up to 90 days, or may make any other decision he or she deems just.
Tip: In this circumstance, it doesn’t matter if you leased or rented the property before or after beginning active duty. All that matters is whether or not you (and/or your dependents) earn enough to afford the rent.
Forestalling foreclosure
Perhaps you’re a reservist who bought a home before you were called to active duty, and now you’re having trouble making your mortgage payments with your lower military income. Under the Act, you may petition the court for relief.
Tip: You don’t have to wait until you’re behind on your mortgage payments to seek this relief. Once you begin active duty, the Act allows you to request relief in anticipation of this possibility.
If the court determines that your ability to make timely mortgage payments has been (or will be) materially affected by your military service, it may order a stay of any proceedings designed to enforce your obligation. Generally, any sale, foreclosure, or seizure of property relevant to your obligation shall be invalid if it occurs during the time you’re on active duty, or within one year days after your release from active duty, unless it’s done in accordance with a court order or a written agreement with you in which you have waived your rights under the Act.
During the time you’re on active duty, you may only be required to make some partial periodic payments on the outstanding debt. Once you’re no longer on active duty, the court may set up a schedule that allows you to make up any mortgage arrearage you’ve incurred. The maximum term you may be given would be the remaining term of the mortgage contract plus a period of time equal to the time you spent on active duty. Of course, you’ll also have to resume making your regular payments for the remainder of the mortgage term.
Interest rate cap
For a debt incurred prior to beginning active duty, the Act requires a creditor to cap the annual interest rate you’re charged at 6 percent during your term of active duty. To obtain this relief, you must request it of the creditor either while on active duty or within 180 days after your release. The interest rate cap will apply as of the date you were called to active duty. Request this relief in writing, and include a copy of the military orders calling you to active service. If the creditor believes your military service hasn’t materially affected your ability to make payments on the debt, the creditor must take you to court to seek relief from the interest cap requirement.
Caution: This interest rate cap doesn’t apply to federally subsidized student loans. However, you can contact your student loan servicing agency or the U. S. Department of Education to inquire about having your payment obligation deferred.
Installment loans
While you’re on active duty, you may seek relief under the Act on an installment contract to purchase real or personal property (including an auto loan) if:
- You entered the agreement prior to beginning active duty, and
- You paid a deposit or at least one monthly payment prior to beginning active duty
If you’re on active duty and breach the contract (perhaps by missing an installment payment), the Act specifies that the creditor can’t terminate the contract or repossess the collateral property (e.g., the vehicle) without court permission. The court may:
- Allow termination of the contract and repossession of the collateral if the creditor repays you any prior deposits and/or installment payments you’ve made
- Order a stay (delay) of the proceedings (on its own or at your petition) for a period of time it determines will serve justice and equity when your ability to make timely loan payments has been materially affected by your military service
- Dispose of the case in any other fashion equitable to the interest of all involved parties
Caution: The Act not only prohibits a creditor from terminating the contract and repossessing the collateral without court permission, it also prohibits you from canceling the agreement. However, it doesn’t prevent you and the creditor from agreeing to a voluntary termination of the contract and repossession of the collateral, providing you do so after being ordered to active duty.
Caution: This provision of the Act doesn’t cover installment contracts you enter into after you begin active duty.
Tip: “Payday loans” to active duty servicemembers and their dependents are regulated by the Military Lending Act (MLA). The annual percentage rate on payday loans is limited to 36 percent, and the law generally prohibits refinancing with the same creditor, bars the use of direct debit repayments, prohibits prepayment fees and penalties, and requires lenders to provide certain mandatory disclosures. The MLA also covers other types of consumer loans and credit cards. Creditors can’t require you to submit to mandatory arbitration or give up rights you have under the SCRA or state or federal laws, or charge a penalty if you pay back part or all of the loan early.
Tax relief
If your ability to pay your federal or state income taxes has been materially affected by your military service, you may apply for relief under the Act. Collection of these taxes can be deferred while you’re on active duty and for an additional period not to exceed 180 days after your separation from military service. During the deferment period, no interest or penalties will accrue for nonpayment of those taxes.
Tip: You can defer not only taxes that come due while you’re on active duty, but also the unpaid balance of any taxes that came due prior to the date you began active duty. To do so, you must have received a notice of tax due or be in an installment agreement with the IRS.
You must satisfy the IRS that you’re unable to pay your federal income taxes and that your inability to do so is a result of your military service. The IRS limits any deferral to an initial period of service, which includes:
- A period of active duty pursuant to a first enlistment
- A period of active duty following recall from a Reserve or National Guard unit
- The first period of re-enlistment following a break in service of at least one year (for enlisted persons; for officers, the break must be at least two years)
Caution: This deferral doesn’t extend the deadline for filing tax returns. Further, separate automatic extension rules for both filing your tax returns and paying your taxes apply if you’re an individual serving in a combat zone or in a contingency operation.
