How Does the SCRA Treat Co-borrowers on Servicemembers’ Loans?
The Servicemembers Civil Relief Act (SCRA) is known to provide select financial and legal protections to service members and their dependents. Among these protections that help service members manage their finances is the interest rate reduction on pre-service obligations.
More people are familiar with how the SCRA affects active duty military personnel, but what happens to their co-borrowers? Below we’ll discuss SCRA rights co-borrowers are provided and how they can request SCRA protections.
Contents
What the Servicemembers Civil Relief Act Says on Loans
The federal law Servicemembers Civil Relief Act, commonly known as the SCRA, allows eligible individuals to have a six percent interest rate reduction on pre-service debt, including loans. This protection applies to most loans during the service member’s active duty period and up to one year after leaving active duty service for mortgage loans.
This SCRA right is debt forgiveness, not delay. The creditor can’t add the interest rate once the service member leaves active duty service. The request to have this SCRA right honored can be submitted anytime while the service member is on active duty and up to 180 days after they leave active duty.
This particular SCRA protection extends to co-borrowers like spouses but is limited to the loans the service member signed onto. SCRA rights are not honored if that person has other debts incurred before the service member entered active duty.
Do Co-Borrowers Get the Same SCRA Protections as Active Duty Service Members?
Yes and no. Because the co-borrower is tied to the active duty service member, the six percent interest rate reduction extends to them. However, other SCRA protections, like the ability to stay court proceedings and cancel lease agreements without penalty, are exclusively available to the active duty service member.
A court order is required for the SCRA protection request to be legally binding. To obtain this specific SCRA right, the co-borrower must prove the service member’s military status.
Moreover, the court would need to know the background of the loan. In short, it should be proven that the debt must’ve been incurred before the service member entered active duty service.
Which Co-Borrowers Qualify for SCRA Protections?
Co-borrowers qualifying for SCRA rights include spouses, children, and other people financially dependent on active-duty military personnel. To clarify, people financially dependent on the service member are those who get at least 50% support from the service member and should prove that the service member had been providing for them for at least 180 days before they applied for SCRA protections.
As mentioned, a proper request requires the applicant to prove the service member’s military status. That service member’s deployment orders or a letter from a commanding officer may suffice. Alternatively, services like SCRACVS can prove one’s active duty status as quickly as one business day.
The date when the loan was taken out is also considered. The loan must’ve been signed before the service member entered active duty. This is why service members must specify when they entered active duty service.
How to Get SCRA Interest Rate Reduction
Unfortunately, SCRA protections aren’t automatic. The co-borrower must prepare a request for each affected creditor. Moreover, it should be proven that the active duty service member is legally required to make monthly payments. Following these steps can ensure that SCRA rights are protected:
1. Prepare the necessary documentation
Whether the applicant is a service member or co-borrower, there should be evidence that one is qualified for SCRA protections. The service member must specify when they entered active duty service because the validity date and period of SCRA rights depend on this.
Furnishing a copy of the service member’s deployment orders would suffice. However, there might be instances wherein this document isn’t readily available. A letter from the service member’s commanding officer would be great, but not everyone would have access to this, especially if the service member is deployed overseas.
Fortunately, SCRACVS can help co-borrowers who are eligible for SCRA protections. SCRACVS can provide evidence that a particular individual is rendering active duty service. This evidence can be presented for the co-borrower to obtain the SCRA benefit of reduced interest rates.
2. Secure a court order
Eligible co-borrowers must apply and secure a court order to legally invoke SCRA rights. The court considers the co-borrower’s relationship with the service member and the nature of the debt. Before the court order is issued, the court considers the following factors to determine if a person’s active duty service has materially affected their ability to make payment:
- Extenuating factors
- Family situation
- Hardship considerations
- Income and resources available to the applicant
- Liabilities
- Length of time the service member has been on active duty
- Likely termination date of active military duty
- The nature of the debts
There is no guarantee that the co-borrower will be provided with SCRA rights. Moreover, the Armed Forces don’t reimburse military families for legal fees in such cases. This is why co-borrowers must determine if the investment and time are worth the trouble before seeking SCRA protections.
3. Provide a written notice of SCRA protection request
Co-borrowers must present a written notice detailing their request to have SCRA protections honored. This letter should specify which SCRA protection they’re asking to be honored. In this case, they need to mention that they want the interest rate for the loan to be reduced. The request should be accompanied by a court order and evidence that the other party to the loan is an active duty service member.
4. Repeat the process for every lender if needed
There may be instances wherein a co-borrower has entered into multiple loans with the service member, especially if they’re a married couple. The co-borrower must provide the same requirements to other lenders if needed. SCRA protections must be proactively applied to be honored and legally recognized.
Conclusion
Co-borrowers can better manage their finances if they qualify and apply for a reduction of six percent interest rate. While the process may be taxing, the long-term benefits may outweigh the time and effort. Fortunately, SCRACVS can help streamline this process by providing evidence that a service member is on active duty. Click here to sign up at SCRAVS and verify the active duty status.
FAQs
Does the SCRA apply to military spouses?
Yes, select SCRA rights extend to military spouses. Among these pertinent protections is the interest rate reduction for debt incurred before the service member went into active service.
Does SCRA apply to loans?
Yes, the SCRA applies to loans incurred before the service member entered active duty service. The date and active duty period are instrumental for SCRA protection validity.
What does the SCRA protect eligible servicemembers from?
The Servicemembers Civil Relief Act protects eligible service members from eviction due to nonpayment, default judgments, storage unit liens, etc. This federal law protects eligible individuals from legal and financial issues affecting their ability to serve the country.
Does the SCRA Automatically Protect Co-Borrowers?
No. SCRA protections aren’t automatic. Like service members, co-borrowers must proactively request SCRA protections from each applicable entity.
