Financial Relief for Reservists

Reservists, new enlistees and others who are called to active military service in the fight against terrorism can receive a variety of financial help, thanks to a turn-of-the-century law aimed at aiding service members who suffer economic hardship when called to war.

The Soldiers’ and Sailors’ Civil Relief Act, first passed in 1918 and last updated after Operation Desert Storm in 1991, can be used to delay tax payments, suspend many civil legal proceedings and get reduced interest rates on credit cards, auto loans and mortgages.

“For those whose situations have clearly changed as a result of being called to active duty, we strongly encourage them to call their lender to qualify for the financial relief this act offers,” said Andrew D. Woodward, president of the Mortgage Bankers Assn. of America. “We stand behind this program to help alleviate the financial burdens of those who will protect and defend America.”

The act has three major components, all based on a common idea: Those called to active military service may be materially affected by both lower pay and an inability to represent themselves in person due to service-related injury or a distant posting. The law aims to reduce the distraction of these personal concerns.

“The service member needs to be worried about one thing--defending the nation,” said Christopher Michel, a former Navy flight officer who is chief executive of Military Advantage, a San Francisco-based membership organization that sponsors the Web site Military.com. “He can’t be worried about his home being foreclosed or getting a bad credit rating.”

However, none of this relief is automatic.

The roughly 30,000 National Guardsmen and military reservists who already have been called to active duty for the war on terrorism--not to mention the 1.3 million reservists who may be called if the war escalates--must notify their lenders, and, where applicable, their attorneys or the Internal Revenue Service to apply for the act’s protections.

Technically, these protections are provided only if the service member is “materially affected” by being called to duty. In legal actions, that simply means that the service member cannot show up in court. In the case of financial obligations, the question is whether low military pay scales create an economic hardship.

The burden of proof is on the lender, landlord or litigant suing the military member, not on the service member. To deny relief under the law, the lender, landlord or lawyer must sue the service member, claiming that the military member is not “materially affected” by active service, says Fred Becker, president of the National Assn. of Federal Credit Unions in Washington. Such suits are rare.

Lenders generally require service members to provide a copy of their military orders, and they may ask for information about the service member’s earnings. But they rarely dispute claims made under the relief act, said a spokesman for the American Bankers Assn.

“If men and women are being called up and asked to sacrifice to defend our country, the least we can do is lower their interest rate,” said John Hall, a bankers association spokesman.

Here’s what the law provides:

* Civil legal proceedings can be put on hold until after the military member returns home. These proceedings include bankruptcy, divorce and civil suits, but not criminal cases.

* Foreclosures and tenant evictions also are halted, in most circumstances. In the case of foreclosure, the proceeding is stopped for the full tour of duty, plus three months. Tenant evictions can be halted for the same time period, if the service member’s monthly rent is $1,200 or less.

The threshold was set in 1991, when the law was updated during the Gulf War. That date may be important for those with rents slightly above the threshold. Some attorneys think courts may adjust the ceiling for inflation, which would protect tenants with somewhat higher rents--perhaps up to $1,500 or $1,600.

* Interest rates on all consumer debts incurred prior to going on active duty are cut to 6%. That applies to home mortgages, auto loans, home equity loans and even credit cards.

There is one caveat: Only the loan amount incurred prior to the active duty service gets the benefit of lower rates. If the service member’s spouse continues to use a credit card, for example, new charges could be assessed at higher market interest rates, said Mathew H. Street, associate general counsel at the American Bankers Assn. in Washington.

The protection also clearly applies to jointly held accounts, but it may not extend to accounts held separately by a service member’s spouse.

* Life insurance contracts can’t lapse while the service member is on active duty--or up to two years afterward, according to a summary of the act at www.military.com.

There is no standard procedure to apply for the act’s protection. Service members generally are urged to call all of their lenders when they receive their orders.

The relief is retroactive from the moment the service member is called to active status, said Street of the banker’s group.

“The interest rate knock-down is the nearest thing to magic that we have in the law,” Street added. “It doesn’t pend on learning that your customer went in. The day you are called to active service, the interest rate doesn’t go down, it is down. That shows the power of this law.”

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Military Assistance

Called to active duty? The Soldiers’ and Sailors’ Civil Relief Act can provide some financial and legal assistance.

* Cuts the interest rate on all loans taken out before active duty to 6%.

* Postpones civil litigation, including divorce and bankruptcy.

* Halts tenant evictions for those with rents of $1,200 or less a month.

* Stops home foreclosures until three months after the service member returns home.

Source: Times research