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If you or someone you know has been a service member for the United States, then you’ve likely heard of the SCRA, which stands for Servicemembers Civil Relief Act. The SCRA was formerly referred to as the Soldiers’ and Sailors’ Civil Relief Act and was enacted in 2003. It aims to protect military personnel on active duty by limiting actions that can be taken against them. It’s also intended to reduce, postpone or stop any civilian obligations while a person is on active duty.
This law allows military personnel to focus on their military duties by reducing financial and legal burdens that might otherwise affect them.
What does the SCRA cover?
The SCRA extensively protects active military personnel and covers many different factors. Some of the most-used features include limits on interest rates, foreclosures and income taxes.
Interest rates
Under the SCRA, creditors must limit the interest rate for military personnel to 6 percent per year. This maximum also applies to debts incurred before military service. Any interest that’s higher than this maximum must be forgiven by the creditor.
This limited interest rate applies to credit cards, mortgages, loans and more. However, this rule only applies to federal student loans taken out after August 14, 2008. For mortgages, the reduced rate of 6 percent will continue for one year after active-duty service ends.
A service member’s interest rate isn’t automatically reduced when they enlist in the military. Instead, the individual needs to reach out to their creditor with a copy of their military active-duty orders and a written request to abide by the 6 percent interest maximum.
There are some exceptions to the rule. For example, if a creditor appeals the request and the court finds that the service member’s ability to repay isn’t affected by their active duty, the service member may have to pay the original interest rate.
Foreclosures and repossessions
Under the SCRA, service members are protected against default judgments, including foreclosures and repossessions. When a service member doesn’t appear in court because they’re away on active duty, the court can’t issue a judgment.
Foreclosures
If the service member purchased a home before their active-duty service, a lender can’t seize or foreclose on the house. The only exception is if the lender receives a court order for foreclosure. Some states don’t need a court order to foreclose on a home (nonjudicial foreclosures), but under the SCRA, service members are protected in these states, too.
Additionally, service members receive “tail coverage,” which is an extended period of protection after returning from active duty. The foreclosure postponement lasts for 1 year after active-duty service ends.
Repossessions
Lenders can’t repossess property—such as vehicles—for nonpayment or under contract termination due to payment gaps. This applies to any missed payments during the service member’s active-duty service. However, this protection only applies if:
- The service member purchased or leased the personal asset before beginning active duty.
- They made at least one payment, or put down a deposit, on the personal asset before starting active duty.
However, if a lender receives a court order for repossession, it can bypass SCRA protection.
Income taxes
If a service member can show that their military service impacts their ability to pay their income taxes, they can be deferred. This rule applies to the IRS and state and local tax authorities. Additionally, the service member can’t be charged any interest or fees for the income tax deferral.
Small businesses
If a service member owns a small business, creditors can’t come after them for business obligations or debts while the individual is on active duty. The SCRA protects the individual’s military pay and nonbusiness assets from the creditors associated with the small business.
Credit
When a service member asserts their rights under the SCRA, creditors can’t respond by revoking or denying credit or changing the credit terms. For example, if an individual invokes the 6 percent interest rule, the creditor can’t respond by reducing their credit card limit. But if a service member misses a payment, the creditor can report them to credit reporting companies. This late payment may then show up as a negative item on their credit report and may hurt their credit.
Other
Voting
Service members keep the right to vote in their state of residency, even when they’re stationed for active duty in another state or country. They don’t need to change their voter registration and can vote in their state of legal residence.
Civil judicial proceedings
Any civil judicial proceedings, including family law proceedings, are postponed under the SCRA. If it’s found that a defendant service member hasn’t been able to attend court because they’re on active duty, the court can’t enter a default judgment against them. The service member must then appoint an attorney to represent their interests as a defendant.
Life insurance
A life insurance company can’t increase payments or end coverage because an individual is on active duty. An exception to this rule is natural premium increases that come as a result of age. Insurance companies also can’t limit or restrict any type of coverage due to active-duty service.
Who is eligible?
Now that you know what SCRA is, you might wonder who’s eligible for this protection. The SCRA covers all active-duty military members, including:
- Army
- Marine Corps
- Air Force
- Space Force
- Coast Guard
- Navy
- Reserves and National Guard
- Commissioned officers on active duty with the Public Health Service or the National Oceanic and Atmospheric Administration
A service member’s eligibility begins the first day of their active-duty service commitment and ends between 30 and 90 days after finishing active duty. For some aspects covered by the SCRA, the protection can extend up to 180 days post-active duty.
SCRA protections can apply to the spouses and children of service members or other individuals who relied on the service member for 50 percent or more of their financial support. This support had to start at least 180 days before using SCRA protections.
Service members who are uncertain about the coverage for themselves or their loved ones can contact the Legal Assistance Office at their base.
Waiving your rights
A service member can waive their rights under the SCRA with a written document signed after their military service period starts. Waiving your SCRA rights before entering military service makes the action void.
While you can waive your SCRA rights, it’s generally not recommended. Consult an attorney before waiving rights, and read the documents carefully before signing.
How to take advantage of the SCRA
The majority of your rights under the SCRA require you to take some form of action before protection takes effect. Tax authorities, lenders and courts often don’t know when a person is on active duty. To take full advantage of the SCRA, you should first understand all the benefits and your rights.
For example, to get a refund on certain interest and fees, you have to actively request relief by submitting paperwork so they can verify your active-duty military status. It may not be an automatic process, but it’s worth the effort.
In general, when you’re applying for SCRA benefits, you’ll need to provide the following information:
- Account number
- Start date of the active-duty service
- Request for relief in accordance with the SCRA
- Copy of active-duty orders
Certain companies may give you extra SCRA benefits on top of everything else. One large bank offers active-duty personnel interest rates that are 2 percent lower than what the SCRA requires. Many other creditors and financial institutions also offer additional benefits.
By understanding your SCRA benefits, you can set yourself up to take full advantage of everything offered. This can help you significantly when you return from active duty.
If you’re about to leave for active duty, knowing where your credit stands can give you peace of mind. Lexington Law can offer you a free credit assessment, which includes access to your credit score and credit report and a personalized recommendation of how to begin repairing your credit. Don’t wait any longer. You’ll be happy you took care of this important task before you left for service.
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