Active Military Duty

Whether or not we go to war with Iraq, to date thousands of military personnel have been called to active duty, and it is not clear how many more will be called upon to serve in the days or months to come. Borrowers who have been called up for military duty are entitled to relief under a very old law known as the Soldiers and Sailors Civil Relief Act. And these benefits apply regardless of the nature of the debt -- mortgage, auto loans and even credit card debt. Enacted by Congress at the start of World War II, this act requires all lenders to automatically reduce the interest rate obligations of persons in active military service down to six percent. It should be noted that interest rates were higher when the law was first passed.

How does this law work? Quite simply. If you - or a family member - have been called into active duty, your lender should be notified immediately. The lender is then required by law to immediately reduce the interest rate on your loan so that it does not exceed this six percent cap. It is to be noted that this law applies only to debts incurred prior to the debtor going into active service. Debts incurred while in the military -- or after discharge -- are not covered under this law.

The law is straightforward - and a very powerful tool designed to assist servicemen and women whose income is less while on active duty than what it was in civilian life. The law simply states: No obligation or liability bearing interest at a rate in excess of 6 percent per year incurred by a person in military service before that person's entry into that service shall, during any part of the period of military service, bear interest at a rate in excess of 6 percent per year unless, in the opinion of the Court, upon application thereto by the obligee, the ability of such person in military service to pay interest upon such obligation or liability at a rate in excess of 6 percent per year is not materially affected by reason of such service... In simple terms, if you are on active military duty (which includes the Coast Guard, Officers of the Public Health Service and the National Oceanic and Atmospheric Administration) your interest rate on your debt obligation must be reduced down to this six percent rate. You should immediately advise your lender that you have been called to active duty. Send your lender (or lenders) a letter, certified, return receipt, and enclose a copy of your mobilization orders. Your letter should also outline -- in general terms -- why your income will be (or has been) significantly reduced as a result of the call-up. Unless the lender does not believe you, your lender must immediately comply with your request -- and with the law.

If your lender does not believe that your income today is materially lower than when you were a civilian, the lender has the right take you to Court ,but the burden to prove that you have not been "materially affected by reason of such service" falls squarely on the lender. You do not need an attorney to defend yourself, but you should at least consult with legal counsel so as to understand the court process. You may also want to talk with the military (JAG) officer assigned to your unit. The benefits of the Soldiers and Sailors Civil Relief Act are retroactive. Thus, everything you have paid over six percent from the time you were called into military service must be credited toward your account. It should be noted that the reduction in the interest rate must be accompanied by a reduction of the monthly payment. The lender cannot require you to continue to pay your same payment each month, and credit more toward principal. Unfortunately, federally guaranteed student loans are not protected by the interest rate cap. However, from past experience, the Department of Education has deferred -- or even suspended -- payments on these student loans while the debtor was on active military duty.

In addition to mortgage and other debt payments, the Act provides other important relief to the men and women in our Armed Services.

Leases : if a lease was entered into prior to the tenant's entry into the armed services, the tenant has the right to terminate the lease, even before the term has expired. This does not, however, give a military personnel the right to terminate leases entered into while they are on active duty. The landlord must be given thirty days advance notice of the termination, and rent must be paid up to the date the lease is terminated. Rent and Evictions: military personnel - just like their civilian counterparts - must continue to pay rent if the lease is not terminated. However, the Act does provide some protection from eviction. Only a court can order the eviction of any tenant. If the Judge determines that the military service has materially affected the ability to pay, the Court must stay (stop) the eviction for a period of not more than three months.

There are three basic requirements imposed by the law: The landlord is attempting to evict a person who is in military service; The leased premises are used for residential housing by the spouse, children or other dependents of the military person, and The agreed upon rent does not exceed $1,200 per month. It is interesting to note that this protection applies regardless of when the lease was entered into. Since this is a complex issue, tenants who are on active military service must consult with the military legal assistance attorney assigned to their unit.

Insurance: the private life insurance policy cannot lapse, terminate or be forfeited for nonpayment of premiums for a period while the insured in on active duty, plus two years.

Garnishments and attachments: On the request by the military person - or the Court on its own - may stay or vacate any attachments or garnishments against the debtor during the period of active duty plus up to 60 days after that duty ends.

Court actions in general: if you are on active duty, and get involved in a civil legal matter -- such as foreclosure actions, divorce proceedings or even bankruptcy -- and you can demonstrate that your military obligations interfere with your ability to properly participate in the litigation, you have the right to request a delay (called a "stay") in these court matters until you have been released from these military duties. Please note that the Court will stay these legal matters only the service member is unable to appear or adequately participate in the Court case; just because the service person is unwilling to appear is not an excuse the Court will accept. Creditors, however, are not left out in the cold. Any applicable statute of limitations (the time limits imposed by law for filing suits) are extended for the same period of time that that Court action is delayed. Thus, the law provides broad protections for those who have been called up to serve our Country. It begins on the date you enter active military service and will generally end within 30 to 60 days from the date you have been released from such duty. But, the burden is on you -- the service person or a member of the family -- to advise the creditor and the Court just as soon as the active duty begins.

Published: January 20, 2003