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Bankruptcy and Members of the Military

Special protections exist for members of the military who are faced with bankruptcy. A federal law called the Servicemembers' Civil Relief Act is intended to strengthen national defense by giving servicemembers certain protections in civil actions. Following is an overview of the Servicemembers' Civil Relief Act and military members' rights under the Act.

The Servicemembers' Civil Relief Act

By providing for the temporary suspension of judicial and administrative proceedings and transactions that may adversely affect servicemembers during their military service, the SCRA enables servicemembers to focus their energy on the defense of the United States. Among other things, the SCRA allows for forbearance and reduced interest on certain obligations incurred prior to military service, and it restricts default judgments against servicemembers and rental evictions of servicemembers and all their dependents. The SCRA applies to all members of the United States military on active duty, and to U.S. citizens serving in the military of United States allies in the prosecution of a war or military action. The provisions of the SCRA generally end when a servicemember is discharged from active duty or within 90 days of discharge, or when the servicemember dies. Portions of the SCRA also apply to reservists and inductees who have received orders but not yet reported to active duty or induction into the military service.

The SCRA and Bankruptcy

The language of the SCRA states that it is generally applicable in any action or proceeding commenced in any court. Therefore, the SCRA applies to all actions or proceedings before a bankruptcy court. The default judgment protections of the SCRA also clearly apply in bankruptcy cases. SCRA protections are described in-depth below.

Protections Under the SCRA

There are three primary areas of coverage under the SCRA:

  1. Protection against the entry of default judgments;
  2. Stay of proceedings where the servicemember has notice of the proceeding; and
  3. Stay or vacation of execution of judgments, attachments and garnishments.

Protection Against Entry of Default Judgments

The SCRA establishes certain procedures that must be followed in all civil proceedings in order to protect servicemember defendants against the entry of default judgements. If a defendant is in default for failure to appear in the action filed by the plaintiff, the plaintiff must file an affidavit1 with the court before a default judgment may be entered. The affidavit must state whether the defendant is in the military, or that the plaintiff was unable to determine whether the defendant is in the military. The court may not order entry of judgment against the defendant if the defendant is in the military until after the court appoints an attorney to represent the defendant. If requested by counsel for a servicemember defendant, or upon the court's own motion, the court will grant a stay of proceedings for no less than 90 days if it determines that (1) there may be a defense and the defense cannot be presented without the defendant's presence; or (2) after due diligence the defendant's attorney has not been able to contact the defendant or otherwise determine if a meritorious defense exists. The court may, in its discretion, make further orders or enter further judgments to protect the rights of the defendant under the SCRA.

Stay of Proceedings Where Servicemember has Notice

Outside the default context, and at any time before final judgement in a civil action, a person covered by the SCRA who has received notice of a proceeding may ask the court to stay the proceeding. The court may also order a stay on its own motion. Id. The court will grant the servicemember's stay application and will stay the proceeding for at least 90 days if the application includes: (1) a letter or other communication setting forth facts demonstrating that the individual's current military duty requirements materially affect the servicemember's ability to appear along with a date when the servicemember will be able to appear; and (2) a letter or other communication from the servicemember's commanding officer stating that the servicemember's current military duty prevents his or her appearance and that military leave is not authorized for the servicemember at the time of the letter. The court has discretion to grant additional stays upon further application.

Stay or Vacation of Execution of Judgements, Attachments and Garnishments

In addition to the court's ability to regulate default judgments and stay proceedings, the court may on its own motion and must upon application: (1) stay the execution of any judgment or order entered against a servicemember; and (2) vacate or stay any attachment or garnishment of the servicemember's property or assets, whether before or after judgment if it finds that the servicemember's ability to comply with the judgment or garnishment is materially affected by military service. The stay of execution may be ordered for any part of the servicemember's military service plus 90 days after discharge from the service. The court may also order the servicemember to make installment payments during any stay ordered.

Additional Protections: Evictions

The SCRA also provides in most instances that a landlord cannot evict a servicemember or dependents from a primary residence without a court order. In an eviction proceeding, the court may also adjust the lease obligations to protect the interests of the parties. If the court stay the eviction proceeding, it may provide equitable relief to the landlord by ordering garnishment of a portion of the servicemember's pay. Under the SCRA a servicemember may terminate residential leases if he or she is transferred after the lease is made.

See also:

 

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