Hey all! This week’s post comes from NOLO. We believe it is very informative regarding the well-deserved rights of active service members against creditors. In addition to the rights listed below, the bankruptcy code exempts from means testing for Chapter 7 eligibility for both; i) disabled veterans whose indebtedness occurred primary during a period when they were on active duty or performing a homeland defense activity; and ii) members of the military reserves or National Guard for the period when they are on active duty or performing homeland defense activities, and for 540 days thereafter. These exemptions may enable higher income debtors to qualify for Chapter 7 if they were previously or are currently on active duty.
Active service members can take steps to reduce loan obligations, prevent court judgments, and avoid eviction and foreclosure.
A powerful federal law helps active service persons handle their legal affairs and reduce financial obligations while on active duty. Below we discuss the following benefits provided by this law:
* reduced interest rates on existing debts
* special treatment for tenants regarding lease cancellations and evictions, and
* protection from court actions and repossessions.
For employment issues facing servicemembers, see Taking Military Leave.
The Servicemembers’ Civil Relief Act
The Servicemembers’ Civil Relief Act, or SCRA (50 U.S.C. App. § 501 and following), applies to all active duty members of the armed forces, including the activated National Guard, the commissioned corps of the National Oceanic and Atmospheric Administration (NOAA), and the commissioned corps of the Public Health Service.
The SCRA aims to allow military members to serve without suffering financial or legal repercussions at home. In particular, Congress recognized that military pay for many activated reservists would likely be lower than their normal income, making it hard to pay debts.
Reduced Interest Rates on Existing Debts
Under the SCRA, many active duty personnel are entitled to a 6% interest rate cap on debts or financial obligations of any kind (except federally guaranteed student loans).
Conditions to Get the Interest Rate Reduction. To get the reduced rate, you must meet these conditions:
* You took out the loan before you began active duty. For example, a reservist who buys a car in June and goes on active duty the following October is entitled to the reduction. A sailor who secures a car loan while on active duty and then is transferred out of the country does not qualify for the reduction.
* Your military service materially affects your ability to pay the loan at the pre-service interest rate. This usually boils down to showing that you make significantly less money now than before you went on active duty.
How to Get the Rate Reduction. Write a letter to the lender asking that the interest rate on the loan be changed as of the date your active duty began. Include copies of your orders and paychecks, and evidence that you are now making less money than you did prior to active duty.
What Must the Lender Do? The lender must reduce the interest rate on the loan to 6% or less if you’ve provided the correct information. The lender can contest the reduction in court – which it might do if it believes your income reduction doesn’t materially affect your ability to pay the interest on the loan. Until the court rules, however, the interest rate must remain reduced. Once you resume inactive status, the loan will revert to its original rate.
Special Treatment for Tenants
Many active duty members may also be able to terminate lease obligations and avoid eviction.
Cancellation of Residential or Commercial Leases
Tenants who enter active military service after signing a lease or rental agreement have a right to get out of their rental obligations. This is true for both residential and commercial (business) leases. You must mail written notice of your intent to terminate your tenancy, along with a copy of your orders, to the landlord or manager.
* Month-to-month rental agreements. Once the notice is mailed or delivered to the landlord or manager, the tenancy will terminate 30 days after the day that rent is next due. For example, if rent is due on the first of June and you mail a notice on May 28, the tenancy will terminate on July 1. This rule takes precedence over any longer notice periods that might be specified in your rental agreement or by state law. If state law or your agreement provides for shorter notice periods, the shorter notice periods will control.
* Leases. Once the notice is mailed or delivered, the tenancy will terminate 30 days after the day that rent is next due. For example, suppose a tenant signs a one-year lease in April, and rent is due on the first of the month. The tenant enlists or is called up on October 10. If the tenant mails a termination notice on October 10, the lease terminates on December 1, which is 30 days after the first time that rent is due following the mailing of the notice (November 1). This tenant will have no continuing obligation for rent past December 1.
Delaying Eviction for Nonpayment of Rent
The SCRA requires courts to postpone (stay), for up to three months, some residential evictions for nonpayment of rent.
Which tenants are affected? The SCRA applies if your spouse, children, or other dependents occupy the rental unit during a period of military service. (A dependent is someone you’ve supported in the past 180 days, by paying more than half of that person’s living expenses.)
Rental amount. The Act’s protections apply when the rent is $2,400 per month or less. That figure — chosen by Congress in 2003 – is adjusted to account for inflation or cost of living increases.
The effect on an eviction lawsuit. The Act does not prevent a landlord from serving a termination notice for the nonpayment of rent. But a landlord who has filed suit must tell the court that the tenant is an active service person (so be sure to notify your landlord when you are activated). The judge will decide whether the service person’s status in the military materially affects his or her ability to pay the rent. If the judge determines that it does, the judge may stay the eviction for up to three months. If the judge decides otherwise, the lawsuit will continue and may result in an eviction.
The Secretary of Defense or the Secretary of Transportation may order that part of your pay be allotted to pay the rent.
For more information on tenant issues, see Nolo’s Renter’s Rights Resource Center.
Protection From Court Actions and Repossessions
The SCRA also protects active duty service members from some court judgments and repossessions.
Delay of All Civil Court Actions
The SCRA allows active service persons to ask for a postponement (stay) of many kinds of civil actions in which the service person is a defendant. In addition, when calculating the statute of limitations (the time during which a person must bring a lawsuit, or lose the right to do so), the period of time that the person has been in the military is not counted.
These provisions of the Act have been used most frequently in foreclosure and domestic relations cases.
Foreclosure. No lender, including credit unions, banks, and individuals, may foreclose on, seize, or sell the homes of military personnel during active duty or up to three months after. To be eligible for this protection, you must have taken out the mortgage before you began active duty.
However, a mortgage lender can request permission from the court to foreclose if it thinks that a borrower’s active status has not materially affected his or her ability to pay the loan or appear in court. For example, a newly activated reservist whose income level has not dropped, who has been posted to a nearby city, and who can obtain leave to attend court will probably not qualify for a postponement of a foreclosure.
Divorce proceedings. Active military personnel may ask for a postponement (stay) of divorce proceedings if they can show that their active status makes it impossible to attend the proceedings.
A default judgment occurs when you are sued and fail to appear in court, and the judge then rules against you in your absence.
Plaintiff must notify the judge that you are on active duty. Under the SCRA, a plaintiff — who brings a lawsuit — who seeks a default judgment against an absent active duty service member must notify the court that the service person is on active duty. If neither the service member nor his or her attorney appears in court, the court may appoint an attorney to represent the service member in his or her absence.
You may be able to reopen the case later. If the court enters a judgment against you during your military service, under certain circumstances you may be able to reopen the case later.
The SCRA prohibits repossessions performed without a court order (such as those done by merchants or “repo” specialists) of goods purchased by installment contract, such as consumer items or cars, as long as the purchase was made before active duty began.
If you are on active duty, the merchant must get a court order before it can repossess an item. Once in court, an active duty service member may apply for a stay of repossession proceedings. The judge will grant the stay if the service person’s ability to pay the debt has been materially affected by entering active service, in the judge’s view.
SCRA: Web Resources
The various branches of the United States military have helpful websites explaining the meaning and application of the Servicemembers’ Civil Relief Act. The following two sites explain the Act’s protections in detail:
Once you get to military.com, type “SCRA” into the search box. The resulting links give information on the Act as well as financial, educational, and other support services for family of active duty service members.
For a comprehensive discussion of legal issues facing tenants, read Every Tenant’s Legal Guide by Janet Portman and Marcia Stewart (Nolo).
© 2010 Nolo