Legal Protections for America's Military: The Servicemembers' Civil Relief Act
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:
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.
|
