Articles
Creditor Liability Under Soldiers' and Sailors' Civil Relief Act
April 1, 2003
As a result of the recent increased military deployments, reservist activations and recruitment activity we have experienced, it is important that creditors be especially sensitive to the provisions of the Soldiers' and Sailors' Civil Relief Act ("SSCRA"). North Carolina hosts some of the largest military bases in the nation, including Fort Bragg, Camp Lejeune, Pope Air Force Base and Seymour Johnson Air Force Base. It is especially important that any creditor seeking to enforce payment agreements or to recover collateral in North Carolina understand the implications of the SSCRA.
Title 50, Section 501-591 of the United States Code is commonly referred to as the "Soldiers' and Sailors' Civil Relief Act of 1940." The law was enacted in the midst of World War II and when overwhelming national support of our war effort inspired Congress to provide some protections for our military. The act protects those in the active service of the Army, Navy, Air Force, Marines and Coast Guard. National Guardsmen and reservists called to full-time active duty or during their annual training are also protected by the act. Many creditors are surprised to learn that the act also protects dependant co-debtors on the obligation, even if they are not also active duty personnel.
One of the purposes of the act is to remove any financial deterrent from those contemplating enlistment and to lessen the economic burden to those drafted into the military and away from higher paying jobs in the private sector. A customer who obtains credit and subsequently enters the military or who was a reservist and is later called to full-time service is entitled to the greatest protection under the act. If requested by the debtor, the SSCRA may require a creditor to lower its interest rate to six percent on credit obligations incurred prior to active service. The act may also extend a soldier's time to redeem property after default. If it appears a debtor, now in active duty, was a civilian or a reservist at the time of the application, the act requires court approval prior to judicial proceedings, self-help repossession, foreclosure, eviction, or rescission of contracts or leases.
Congress recognized the potential for abuse of the act by members of the armed services. If unlimited, the act could have allowed members of the armed services to incur great debt with little fear of consequence. Fortunately for creditors, a member of the armed services who incurs a debt while on active duty is given less protection under the SSCRA. Presumably, this is because individuals incurring debt during a time of active duty are aware of their limited salary potential and should know to not overextend themselves.
However, even those familiar with the act often overlook the protections provided to all active service personnel, regardless of whether the debt was incurred prior to active duty. While a service member's duty "materially affects" his ability to meet legal deadlines or to respond to litigation he may be entitled to protection under the act. Depending on the situation, the act may toll the statute of limitations on civil actions during the period of active service and may prohibit eviction without court approval. In any event, a default judgment may not be entered against any active member of the armed services unless the creditor complies with additional procedural requirements.
The act creates strict liability for creditors who violate its provisions. Violations of the act can result in the creditor being fined and/or imprisoned. Ignorance the debtor's active duty status is not a defense. Whether the soldier is deployed or whether the country is at war is irrelevant to whether a member of the armed services is considered "active." Even during peacetime, stateside active members of the armed services receive most of the same protections as their overseas counterparts.
Admittedly, it is difficult for a creditor to know when a customer who originally applied for credit as a civilian has since enlisted or been called to active duty. Often the creditor only becomes aware of this status after default and during collection efforts. Unfortunately for the creditor, this is also the set of circumstances under which the act provides the most protection.
A creditor must be especially careful whenever the debtor's information contains a military rank, (PFC John Doe) or when his or her current address is apparently of a military nature (Camp Lejeune, Fort Bragg, APO, etc.) This is a clear signal that further investigation is required before taking action. A creditor must not proceed in the normal course of business against a debtor who is believed to be in service, has a military address or has a military title before investigating the situation further. It is imperative that a creditor correctly identify its available remedies before pursuing collection of the debt.
Under any circumstances, please seek legal advice before utilizing "self help" in foreclosing, repossessing or selling any collateral held by a debtor that might be in the military. We encourage you to contact our office about the claim so that we may assist you in determining whether the debtor is protected by the act and advise you of any available remedies. There is currently a bill pending before the United States Congress, which would serve to amend certain provisions of the SSCRA. We will keep you informed of any substantial amendments to the act in the event they are enacted.
