JANUARY/FEBRUARY 2003 issue Vol. 1 – Issue 1
Military Personnel Receive Special Protection
The Soldiers and Sailors Civil Relief Act of 2003 offers special protection for men and women in the military with credit problems. All military personnel, including those in the National Guard, whether they are stationed in a war zone, enlisted or called-up-for duty, are entitled to the benefits of the Act.
Although some credit card interest rates can range as high as 25%, the provisions of the Act extend protection not only to military personnel, but to co-signers and dependents as well. It reduces interest rates to 6%. There are also restrictions on repossession and eviction from residential rental property and apartments. The most current act passed by Congress and signed into law by President Bush has expanded many of the Acts old provisions and increased the types of debts covered and the amounts that can be covered. Many creditors know about the Act and comply with it. But some creditors and their attorneys do not comply and ignore the protection offered through the Act. Any creditor who attempts to collect a debt in violation of the Act may also trigger the protections of the Fair Debt Collection Act which provides the injured party with compensation and assesses penalties against violators.
What Does the Act Cover?
The Act requires all debts incurred before a service members goes on active duty to be reduced to 6%. A wide range of debt covered include car loans, mortgages, credit cards, business debts, and even includes a corporation in which a principal officer is personally liable. The reduced rates last as long as the service person is on active duty.
The interest rate reduction covers debts which are “liabilities” as well as “obligations”. This also applies to interest paid on obligations under a confirmed Chapter 13 bankruptcy plan. However, student loans are not included. Students should, however, apply for a deferment due to military service. The new provisions cover lease payments and provide protection against summary evictions.
Monthly Payment Plans Must Be Reduced
A key positive feature of the Act is that interest in excess of 6% must be forgiven by the creditor not deferred. The creditor cannot simply continue collecting the same payments and applying a greater portion to the principal. The Act requires the creditor to establish a new monthly payment schedule and recalculate (re-amortize) the loan to reflect a 6% interest rate over the balance of the loan.
This will save service people thousands of dollars and relieve the stress of worry about debts while on active duty. For example, a service member who secured a home 30 year mortgage for $80,000 at 16% would see their payments lowered from $1,075 per month to just $479 while paying off $864 on the principal. Paying off more principal benefits the service person when the interest rate returns to 16%, and they are no longer on active duty. The total savings over the life of the mortgage could add up to $11,189. Co-signers for the service person reap the benefits of the lowered rate because they cannot be forced to pay the higher contract rate. As a result, this eliminates their placing pressure on the service person to pay the contract rate while on duty.
Importance of Notifying Creditors Immediately
If a creditor can go to the court and demonstrate that the service person continued paying the higher rate and stopped later to ask for the reduced rate, the court may, at its discretion, order the higher rate be continued because they were able to do so while in the military.
Even though a creditor has no way of knowing whether a person entered the military, notifying all creditors is critical. A service person can request a retroactive rate reduction back to the date when active duty began, at any time, even after their tour of duty ends. But a creditor may choose court action to prove the person demonstrated an ability to pay was not affected by military duty.
Creditors Cannot Change Debt Terms
Creditors cannot cut off or change credit contract terms after a service person decides to exercise their right offered through the Act. Also, making an adverse credit report due to the reduced rate or accelerating the debt to collect the entire amount immediately is probably in violation of the Act. If a creditor forecloses on a mortgage or takes actions which can be interpreted as a form of retaliation against a military person because they utilized the reduced interest provisions, the creditor will create a cause to cite them for violating the Act.
Finally, if a creditor reports negative credit information to a credit reporting agency and they did not reduce the interest rate as provided in the Act, the military person will have strong probable cause to sue them under the provisions of the Civil Relief Act. In addition the credit report can be corrected under the Fair Credit Reporting Act.
For further information call us at 518-459-1630 or 845-340-9788.
