Bankruptcy for Military Service Personnel

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The Servicemembers’ Civil Relief Act (SCRA) was passed to thwart attempts to sue or to file liens against members of the military in the United States.

The protection that SCRA grants to military personnel also benefits many individuals who are associated with servicemen and -women. This makes a great deal of sense for a military that relies on young members, whose families may be helping with the financial sacrifices that go along with military service. Anyone who is a co-signer, or who shares debt with a military member, will have some protection from suits and judgments, as well.

SCRA accomplishes three things that result in making bankruptcy filing unnecessary or unattractive for military personnel:

1. It prevents the filing of a default judgment by a creditor.
2. It requires that notice be given to a military member about his or her accounts.
3. It can wipe out judgments and garnishments against service members. These very broad powers even can stop evictions.
   

The SCRA protections apply to all active duty military personnel, as well as many reservists and Guard members. Of course, the law is only good if a military member actually uses it. Fortunately, a serviceperson can enjoy the benefits of SCRA simply through the submission of a sworn affidavit to any court considering a lawsuit against him or her.

While SCRA goes to great lengths to protect those in uniform, it does eventually run out. At the longest, it can be in affect for up to 60 days after a military member’s discharge.

Mortgages Not only can foreclosure on one’s home be halted, but a new payment plan also may be ordered by a court.

Rent Servicemen and –women and their dependents are protected against eviction, as long as rent is not more than $1200 per month.

Interest Rates Service members may be protected against interest rates over six percent, and may request that rates not exceed that amount.

Insurance If the premium on insurance has not been paid for a certain period of time and cancellation normally would be imminent, SCRA will help to prevent such action.

Credit Report Creditors’ rights to report negative items if a service member is unable to pay is limited, based on difficult conditions related to his or her service.

The backbone of SCRA is the right to stop actions against military personnel. Simply by writing to a court and providing some proof of one’s inability to attend a hearing, case, lawsuit or deposition, he or she cannot be punished or lose any credit and debt rights. The court almost certainly will order that any action to collect a debt be stopped until the service member is available.

One common problem addressed by courts is whether or not to allow a service member to keep residency in a particular state while he or she is posted elsewhere. Under SCRA, residency often is upheld. This can affect rights of homestead or even bankruptcy rights that are unavailable to non-military personnel.

In so many ways, protection under SCRA is better than filing for bankruptcy. In addition to the above considerations, many military personnel are concerned about possible damage to their careers due to bankruptcy.

There is one basic qualification that must be met by personnel to qualify for SCRA protections; their service must “materially affect” their ability to pay. In short, a well-paid general usually cannot take advantage of the act. Instead, the SCRA is there for those who serve and sacrifice in every aspect of their lives, including succumbing to financial hardship.