Servicemembers Bankruptcy Relief Amendment Needed To Protect Military Families
The Servicemembers Civil Relief Act (SCRA) protects active duty military personnel from certain collection tactics and claim enforcement actions. But the SCRA has several major limitations and it does not eliminate the financial problems that cause military families to file bankruptcy.
SCRA Does Not Apply To Debts Incurred After Military Service Begins. The most significant limitation of the SCRA is that its primary protections apply only to obligations entered into before a call to active duty. Ironically, the SCRA does not protect military families at a time when they need it the most – that is when additional debt is incurred to help make ends meet during active duty.
Collection actions can still proceed if the military family falls behind on credit card or home equity line charges used to cover, for example, necessary home or auto repairs;
Repossessions and threatened bad check actions can still proceed if the military family falls behind on a loan to replace a broken down auto or a payday loan to help cover the rent;
Even the 6% interest rate cap applies only to charges before active duty, so that a credit card balance which typically would be smaller before active duty since incurred when the family’s income was higher gets the protection, but no help is provided in paying off larger charge balances after active duty which may have annual interest rates over 30%, or payday loans with annual interest rates over 400%.
SCRA Protections Are Not Automatic - Getting SCRA Relief Can Be Costly. The SCRA protects servicemembers by suspending many court proceedings, but lien enforcement on autos and other personal property is almost always done by self-help repossession without any court action. Even homes are foreclosed in many states through non-judicial proceedings.
Auto lenders and their repossession agents typically do not verify debtors’ military status before a repossession. And since repossessions occur without notice, military families may not have informed the lender they have SCRA protection. Once an auto has been repossessed, military families will incur costly legal expenses in invoking the SCRA to get the auto back;
The SCRA provides that payments on some loans “may” be deferred or adjusted while on active duty, but only if the servicemember applies to a court for this relief and incurs additional legal expenses in doing so.
SCRA Does Not Fully Protect a Servicemember’s Spouse or Dependents. Even if a lender checks military status before taking action, it will not be alerted to SCRA coverage if the loan is in the name of a servicemember’s non-military spouse. While SCRA protections may extend to the spouse, the lender first must be notified, and some protections like the ban on repossessions and the interest rate cap do not automatically apply to loans that are solely in the spouse’s name, and may be invoked, if at all, only if the spouse obtains a court order.
SCRA Protections Are Not Absolute - Creditor Action Can Proceed If Servicemember Not “Materially Affected.” If a servicemember’s home is being foreclosed, a court may stay or continue the foreclosure, or order reduced payments, but only if military service “materially affects” the servicemember’s ability to pay or meet other loan obligations. Some courts have allowed foreclosures to proceed under this standard when the default on the mortgage occurred before entering military service.
SCRA Does Not Stop Debt Collection Harassment. The SCRA does not prohibit a creditor from turning an account over to a collection agency to make harassing calls to family members back home.
SCRA Protections Are Temporary At Best and Do Not Provide Long-Term Solutions To Financial Problems. Since the SCRA does not stop payment accrual on pre-active duty debts, or collection on post-active duty debts, military families may need to begin restructuring their debts in a chapter 13 bankruptcy even before the SCRA protections end after active duty. The SCRA does not protect former military personnel on loans in which they are required to assign their military pay or pension benefits.
National Consumer Law Center, Inc. - Contact: John Rao, (617)-542-8010
and NCLC