Financial Relief Available for Active Military Members

October 31, 2008, Written By Sarah Hefner

If you are a military service member called to active duty, the government’s Service Members Civil Relief Act can significantly cut your credit card interest payments as well as offer many other financial protections.

Originally called the Soldiers and Sailors Civil Relief Act of 1940, it was revised in 2003 and renamed the Service Members Civil Relief Act (SMCRA).

SMCRA requires credit card issuers, mortgage lenders and other creditors to lower interest rates to no more than 6% on debt accumulated and loans made before the service member entered military service. Lenders must recalculate payments to reflect the lower rate. For credit cards, the monthly payment must be reduced by the amount of interest saved during the covered period.

Lowering the rate to 6% does not happen automatically. The service member must submit a written request to creditors with a copy of military orders. The creditor must comply with the 6% rate, or apply for court relief by showing that the military service hasn’t “materially affected” the ability to repay the debt.

The average credit card rate is over 12%, so cutting your rate in half to 6% can be a significant savings for your credit card payment. It gives you a chance to pay off more of your balance and reduce the amount of money you pay in interest payments. This is an opportunity for service members to get out of credit card debt much faster.

Once the period of active military service ends, the interest rate for all loans, including credit cards and mortgages, will revert back to the original interest rate, and the payment will be recalculated accordingly.

It is important to note that any debts that are accumulated after going on active duty are not covered under SMCRA. The interest rate on new purchases will be the standard rate, not 6%.

Other financial protections under SMCRA include:

* Protection from eviction. A service member may seek protection from eviction if monthly rent is less than $2,400. (This amount increases as it is adjusted for inflation). Unless the lender has court approval, it may not seize or foreclose property for failure to pay a mortgage debt while the service member is on active duty or within 90 days after their period of military service.

* Termination from lease. If a service member enters into a lease before going into active duty, the SMCRA will allow him/her to break the lease, or to terminate a residential lease entered into while in the military, if the member receives permanent change of station orders.

* Delay of civil court actions, including bankruptcy or divorce proceedings. Service members involved in civil litigation can request a delay in proceedings if they can show their military responsibilities prevent their proper representation in court.

More information about the SMCRA can be found at the links below:
Service Members Civil Relief Act Public Law http://www.usdoj.gov/crt/military/scratext.htm

HUD Service Members Civil Relief Act Q&A; http://www.hud.gov/offices/hsg/sfh/nsc/qasscra1.cfm


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The information contained within this article was accurate as of October 31, 2008. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.