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What is the SCRA? – Lexington Law

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

If you or someone you know has been a service member for the United States, then you’ve likely heard of the SCRA. However, you might not know exactly what the SCRA is or how it can help you. 

SCRA stands for Servicemembers Civil Relief Act. The SCRA (formerly called the Soldiers’ and Sailors’ Civil Relief Act) was enacted into law in 2003. This law aims to protect military personnel who are on active duty by limiting actions that can be taken against them. It also aims to reduce, postpone or stop any civilian obligations while a person is on active duty.

This law is intended to allow military personnel to focus on their military duties by reducing financial and legal burdens that might otherwise affect them. 

What Does the SCRA Cover?

The SCRA is quite extensive in protecting active military personnel and covers many different factors. Some of the most used features include limits on interest rates, foreclosures and more.

Interest Rates

Under the SCRA, creditors must limit the amount of interest for military personnel to six percent per year. This six percent maximum also applies to debts incurred before military service. Any interest that is higher than this maximum must be forgiven by the creditor. 

This limited interest rate applies to credit cards, mortgages, business obligations, fees, service charges, annual renewals and loans (like auto, recreational vehicle and home equity loans). However, this rule affects only some student loans. 

For mortgages, the reduced rate of six percent will continue for one year after active-duty service ends. 

A service member’s interest rate isn’t automatically reduced when they enroll in the military. Instead, the individual needs to reach out to their creditor with a copy of their military active-duty orders and a formal, written request to abide by the six percent interest maximum. 

There are some exceptions to the rule. Suppose a creditor appeals the request and the court finds that the service member’s ability to repay isn’t impacted by their active duty. In that case, the service member may have to pay the original interest rate.

Foreclosures and Repossessions

Under the SCRA, service members are protected against default judgments, including foreclosures and repossessions. When a service member doesn’t appear in court because they’re away on active duty, the court cannot issue a judgment.

Foreclosures

If the service member purchased a home before their military service, a lender cannot seize or foreclose on the house. The only exception is if the lender receives a court order for foreclosure. 

Some states don’t require a court order to foreclose on a home (nonjudicial foreclosures), but under the SCRA, service members are protected in these states too. 

Additionally, a foreclosure postponement extends to one year after military service ends, also known as “tail coverage.”

Repossessions

Lenders cannot repossess property—such as vehicles—for nonpayment or under a contract termination due to payment gaps. This applies to any missed payments during the service member’s military service. The only exception is if the lender receives a court order for repossession. 

Income Taxes

If a service member can show that their military service impacts their ability to pay their income taxes, payment the income taxes can be deferred. This rule applies to the IRS, state and local tax authorities. Additionally, the service member can’t be charged any interest or fees for the income tax deferral. 

Small Businesses 

If a service member owns a small business, creditors cannot come after them for business obligations or debts while the individual is on active duty. The SCRA protects the individual’s military pay and nonbusiness assets from the creditors associated with the small business. 

Credit

When a service member asserts their rights under the SCRA, creditors cannot respond by revoking or denying credit or changing the credit terms. For example, if an individual invokes the six percent interest rule, the creditor cannot respond by reducing their credit card limit. 

However, individuals should note that if a service member misses a payment, the creditor can report them to credit reporting companies. This late payment may then show up as a negative item on their credit report and may lower their credit score. 

Other

Voting

Service members retain the right to vote in their state of residency, even when they’re stationed for active duty in another state or country. They don’t need to change their voter registration and will be able to vote in their state of legal residence. 

Civil Judicial Proceedings

Any civil judicial proceedings, including family law proceedings, are postponed under the SCRA. If it is found that a defendant service member has not been able to attend court because they’re on active duty, the court cannot enter a default judgment against them. The service member then has to appoint an attorney to represent their interests as a defendant.

Life Insurance 

A life insurance company cannot increase payments or terminate coverage because an individual is on active duty. An exception to this rule is natural premium increases that come as a result of age. 

Insurance companies also can’t limit or restrict any type of coverage due to active-duty service. 

Who Is Eligible?

The SCRA covers all active-duty military members, including:

  • Army
  • Marine Corps
  • Air Force
  • Space Force
  • Coast Guard
  • Navy
  • Reserves and National Guard
  • Commissioned officers in active duty with the Public Health Service or the National Oceanic and Atmospheric Administration 

A service member’s eligibility begins the first day of their active-duty service commitment and ends between 30 and 90 days after finishing active duty. For some aspects covered by the SCRA, the SCRA protection can extend up to 180 days post-active duty. 

For Reserve and National Guard members, the eligibility for SCRA begins the very day they receive their mobilization orders. Even if Reserve and National Guard members are in unpaid status or not on active duty, the SCRA protections apply. 

SCRA protections can apply to the spouses and children of service members or to other individuals who relied on the service member for 50 percent or more of their financial support. This support had to start at least 180 days before using SCRA protections. 

Service members who are uncertain about the coverage for themselves or their loved ones can contact the Legal Assistance Office at their base.

Waiving Your Rights

A service member can waive their rights under the SCRA with a written document signed after their military service period starts. Waiving your SCRA rights before entering military service makes the action void. 

While you can waive your SCRA rights, it’s generally not recommended to do so. Make sure you consult an attorney before proceeding with this action, and read the documents carefully before signing. 

How to Take Advantage of the SCRA

The majority of your rights under the SCRA require you to take some form of action before protection takes effect. Tax authorities, lenders and courts often don’t know that a person is on active duty. To take full advantage of the SCRA, you should first understand all the benefits and your rights. 

For example, to get a refund on certain interest and fees you have to actively request relief by submitting paperwork so they can verify your active-duty military status, but it’s well worth the effort. 

In general, when you’re applying for SCRA benefits, you’ll need to provide the following information: 

  • Account number
  • Start date of the active-duty service
  • Request for relief in accordance with the SCRA
  • Copy of active-duty orders

Certain companies may give you additional SCRA benefits on top of everything else. One large bank offers active-duty personnel interest rates that are two percent lower than what the SCRA requires Many other creditors or financial institutions also offer additional benefits.

By understanding your SCRA benefits, you can set yourself up to take full advantage of everything being offered to you. This can help you significantly when you return from active duty


Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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Does Getting Joint Credit Cards Have an Impact on Both Spouses’ Credit?

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couples credit history

While marriage can help you improve your financial situation, it does not automatically mean that you and your spouse will share a credit report. Your credit records will remain separate, and any joint accounts or joint loans that you open will appear on both of your reports. While this can be advantageous, it’s critical to remember that joint account activity can effect both of your credit scores positively or negatively, just as separate accounts do.

Users Who Are Authorized

An authorized user is a user who has been added to an existing credit account and has been granted the authority to make purchases. Authorized users are typically issued a card bearing their name, and any purchases made by them will appear on your statement. The primary distinction between an authorized user and a shared account owner is that the account’s original owner is solely responsible for debt repayment. Authorized users, on the other hand, can always opt-out of their authorized status, although the principal joint account owner cannot.

If your credit score is better than your spouse’s as an authorized user, he or she may benefit from a credit score raise upon account addition. This is contingent upon your creditor notifying the credit bureaus of permitted user activity. If your lender does report authorized users, the activity on your account may have an effect on both you and your spouse. However, some lenders report only positive authorized user information, which means that late payment or poor usage may not have a negative effect on someone else’s credit. Consult your lender to determine how authorized users on your account are treated.

Joint Credit Cards Have an Impact on Your Credit Score

Opening a joint credit account or obtaining joint financing binds both of you legally to the debt’s repayment. This is critical to remember if you divorce or separate and your spouse refuses to make payments, even if previously agreed upon. It makes no difference who is “responsible,” the shared duty will result in both partners’ credit histories being badly impacted by late payments. Regardless of changes in relationship status or divorce order, the creditor considers both parties to be liable for the debt until the account is paid in full.

Accounts Individuals

Whether you’re happily married or divorced, you and your spouse may decide to open separate credit accounts. Most creditors will enable you to transfer an account that was previously joint to one of your names if both of you agree. However, if there is a debt on the account, your lender may refuse to remove your spouse’s name unless you can qualify for the same credit on your own. Depending on your financial status, qualifying for financing and credit on a single income may be tough.

Considerations

While creating the majority of your accounts jointly with your spouse may make it easier to obtain financing (two salaries are preferable to one), reestablishing credit independently following a divorce or separation is not always straightforward. To make matters worse, your spouse may wind up causing significant damage to your credit rating following the separation, either intentionally or through irresponsibility – making the financial situation much more difficult.

Before you rush in and open accounts with your spouse, take some time to discuss the shared responsibility of these accounts and what you and your husband would do in the event of a worst-case situation. These types of financial discussions can be difficult, especially when you rely on items lasting a long time, but a mutual understanding and respect for each other’s credit can go a long way toward keeping your score when sharing an account.

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Should you pay down debt or save for retirement?

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rebuilding credit

While establishing a comprehensive, workable budget is undeniably one of the most important factors in maintaining a healthy financial life, it can also be one of the most difficult. For those who are struggling with personal debt, building a budget can be particularly challenging. When the money coming in has to stretch like a contortionist to cover expenses, it can be hard to determine where to focus — and where to trim.

Sometimes, the battle of the budget can come down to a choice between dealing with the present — and thinking about the future. When your income is running out of stretch, do you pay off your existing debt, or do you start saving for retirement? At the end of the day, the solution to that particular dilemma depends on the type of debt you have and how far you are from retiring.

If you have high-interest debt, pay it down

When considering how to allocate your budget, it’s important to understand the different kinds of debt you may have. Consumer debt can be categorized into two basic types: low-interest debt and high-interest debt, each with its own impact on your credit (and your budget).

In general, low-interest debt consists of long-term or secured loans that carry a single-digit interest rate, such as a mortgage or auto loan. Though no debt is the only real form of good debt, low-interest debt can be useful to carry. For instance, purchasing a home with a low-interest mortgage can actually save you money on housing costs if you do your homework and buy a house well within your price range.

High-interest debt, on the other hand, typically has a hefty double-digit interest rate and shorter loan terms, such as that of a credit card or payday loan. High-interest debt is the most expensive kind of debt to carry from month to month and should always be priority number one when building a budget.

To illustrate why you should focus on high-interest debt above everything else, consider a credit card carrying the average 19% APR and a $10,000 balance. If the balance goes unpaid, that high-interest credit card debt will cost $1,900 a year in interest payments alone. Now, compare that to the stock market’s average annual return of 7%, and it becomes clear that you’ll see significantly more bang for your buck by putting any extra funds into your high-interest debt instead of an investment account.

If you are having trouble paying off your high-interest debt, there may be some steps you can take to make it more manageable. For example, transferring your credit card balances from high-interest cards to ones offering an introductory 0% APR can eliminate interest payments for 12 months or more. While many of the best balance transfer cards won’t charge you an annual fee, they may charge a balance transfer fee, so do your research. You’ll also want to make sure you have a plan to pay off the new card before your introductory period ends.

Most balance transfer offers will require you to have at least fair credit, so if your credit score needs some work, you may not qualify. In this case, refinancing your high-interest debt with a personal loan that has a lower interest rate may be your best bet. Make sure to compare all of the top bad credit loans to find the best interest rate and loan terms.

If you’re nearing retirement, start to save

The closer you get to retirement age, the more important it becomes to ensure you have adequate retirement savings — and the more pressure you may feel to invest every spare penny into your retirement fund. No matter your age, however, paying off your high-interest debt should always remain the priority, as it will always provide the best rate of return (as well as likely provide a credit score boost).

Indeed, no matter how tempting it becomes, you should avoid reallocating money you’ve dedicated to paying off high-interest debt to save for retirement. Instead, the focus should be on re-evaluating your budget to find any additional savings you can. To be successful, you will need to make a strong distinction between want and need — and, perhaps, make some tough lifestyle choices.

Though simply eliminating your daily coffee drink won’t magically provide a solid retirement fund, saving a few bucks by homebrewing while also eliminating a pricey cable bill in favor of an inexpensive streaming service — or, better yet, free library rentals — can add up to big savings over the course of the year. The ideal strategy will involve overhauling every aspect of your lifestyle, combining both large and small cuts to develop a lean budget structured around your long-term goals.

Of course, while you should never allocate debt money to your retirement savings, the reverse is also true. It is almost always a horrible idea to remove money from your retirement account before you hit retirement age — for any reason. Withdrawing early means you will be stuck paying hefty fees for withdrawing money early and, depending on the type of account, you may also have to pay significant taxes.

Aim for both goals by improving income

As you take the necessary steps to pay off debt and save for retirement, you may have already stretched the budget so thin it’s practically transparent. In this case, it is time to consider ways to improve your overall income. Increasing the amount you have coming in not only provides extra savings to put toward your retirement, but may also speed up your journey to becoming debt-free.

The easiest solution may be to look for ways to increase your income through your current job; think about taking on additional shifts or overtime hours to earn some extra cash. Depending on your position — and the time you’ve been with the company — consider asking for a pay raise or promotion, as well.

If you do not have options to make more money at your day job, it may be time to find a second job. Look for opportunities that provide flexible schedules that will accommodate your regular job; many work-from-home positions, for example, can easily fit into most work schedules. Doing neighborhood odd jobs, such as babysitting and dog walking, may also provide a solid income boost without interfering with your existing job.

For some, the need to pay off debt and improve retirement savings can be more than just a source of stress — but a hidden opportunity to begin a new career adventure. Instead of being weighed down by yet more work, use the desire to better your budget as a reason to explore the profit potential of a passion or hobby. Starting a small online store, part-time consulting service, or other small business can be a great way to improve your income and your overall happiness.

While it may sound intimidating, starting a side business can be as simple as putting together a professional looking website and doing a little marketing legwork to spread the word. And no, building a website isn’t as scary — or expensive — as it seems, either. A number of the top website builders now offer simple drag-and-drop interfaces perfect for putting together a professional-looking web page in minutes (without breaking the bank).

Learn how you can start repairing your credit here, and carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.



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How does a loan default affect my credit?

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loan default

Nobody takes out a loan expecting to default on it. Despite their best intentions, people sometimes find themselves struggling to pay off their loans. These types of struggles happen for many reasons, including job loss, significant debt, or a medical or personal crisis.

Making late payments or having a loan fall into default can add pressure to other personal struggles. Before finding yourself in a desperate situation, understanding how a loan default can impact your credit is necessary to avoid negative consequences.

30 days late

Missing one payment can further lower your credit score. If you can pay the past due amount plus applicable late fees, you may be able to mitigate the damage to your credit, if you make all other payments as expected.

The trouble starts when you (1) miss a payment, (2) do not pay it at all, and (3) continue to miss subsequent payments. If those actions happen, the loan falls into default.

More than 30 days late

Payments that are more than 30 days past due can trigger increasingly serious consequences:

  • The loan default may appear on your credit reports. It will likely lower your credit score, which most creditors and lenders use to review credit applications.
  • You may receive phone calls and letters from creditors demanding payment.
  • If you still do not pay, the account could be sent to collections. The debt collector seeks payment from you, sometimes using aggressive measures.

Then, the collection account can remain on your credit report for up to seven years. This action can damage your creditworthiness for future loan or credit card applications. Also, it may be a deciding factor when obtaining basic necessities, such as utilities or a mobile phone.

Other ways a default can hurt you

Hurting your credit score is reason enough to avoid a loan default. Some of the other actions creditors can take to collect payment or claim collateral are also quite serious:

  • If you default on a car loan, the creditor can repossess your car.
  • If you default on a mortgage, you could be forced to foreclose on your home.
  • In some cases, you could be sued for payment and have a court judgment entered against you.
  • You could face bankruptcy.

Any of these additional consequences can plague your credit score for years and hinder your efforts to secure your financial future.

How to avoid a loan default

Your options to avoid a loan default depend upon the type of loan you have and the nature of your personal circumstances. For example:

  • For student loans, research deferment or forbearance options. Both options permit you to temporarily stop making payments or pay a lesser amount per month.
  • For a mortgage, ask the lender if a loan modification is available. Changing the loan from an adjustable rate to a fixed rate, or extend the life of the loan so your monthly payments are smaller.

Generally, you can avoid a loan default by exercising common sense: buy only what you need and can afford, keep a steady job that earns enough income to cover your expenses, and keep the rest of your debts low.

Clean up your credit

The hard reality is that defaulting on a loan is unpleasant. It can negatively affect your credit profile for years. Through patience and perseverance, you can repair the damage to your credit and improve your standing over time.

Consulting with a credit repair law firm can help you address these issues and get your credit back on track. At Lexington Law, we offer a free credit report summary and consultation. Call us today at 1-855-255-0139.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.



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