General Practice, Solo & Small Firm DivisionMagazine

by Janie Anderson Castle, Jeffrey L. Solomon, and Jon L. Swergold

© American Bar Association. All rights reserved.

Janie Anderson Castle and Jon L. Swergold practice at Coll Davidson Carter Smith Salter & Barkett, P.A. in Miami, Florida. Jon L. Swergold formerly served in the U.S. Navy's Judge Advocate General's Corps. and currently serves in the Naval Reserve in Miami. Jeffrey L. Solomon practices at Ballon Stoll Bader & Nadler, P.C. in New York City. He is the chair of the ABA General Practice, Solo and Small Firm Division's Bankruptcy Committee. The authors wish to thank Judge William Brandt of the U.S. Bankruptcy Court for the Western District of Washington. Judge Brandt is a former Captain of the U.S. Navy.

The phrase "hurry up and wait" is well known to both members of the U.S. Armed Forces and members of the legal profession. Nowhere is this maxim more true than when the Soldiers' and Sailors' Civil Relief Act of 19401 (SSCRA) intersects with the Bankruptcy Code in a bankruptcy proceeding.

Lawyers, whether representing debtors or creditors, should be aware of the potential pitfalls of the SSCRA in order to prepare their clients' cases properly. The SSCRA provides:

At any stage thereof any action or proceeding in any court in which a person in military service is involved, either as plaintiff or defendant, during the period of such service or within sixty days thereafter may, in the discretion of the court in which it is pending, on its own motion, and shall, on application to it by such person or some person on his behalf, be stayed as provided in this Act, unless, in the opinion of the court, the ability of plaintiff to prosecute the action or the defendant to conduct his defense is not materially affected by reason of his military service.2


The SSCRA provides a wide range of protections for individuals entering or called to active duty in the military service, and its reach in debtor/creditor relationships is far beyond its interface with the Bankruptcy Code.

The SSCRA is intended to postpone or suspend certain civil obligations to enable service members to devote full attention to duty. The act applies in civil, not criminal, matters. Reservists and the members of the National Guard are protected under the SSCRA while on active duty. The protections generally begin on the date of entering active duty and generally terminate within 30 to 90 days after the date of discharge from active duty.

The most commonly encountered provisions in the SSCRA include:

Rent. The SSCRA prohibits eviction, without a court order, of a service member and her dependents from rented housing where the rent does not exceed $1,200 per month. The court may delay eviction proceedings for up to three months.

Mortgage foreclosure. If a service member's ability to pay is "materially affected," the SSCRA stays foreclosure and orders an equitable remedy. Courts may order a decrease in payments while the member is on active duty, reopen default judgement, or extend the loan repayment period.

Installment contracts. A service member who enters into an installment contract prior to entering active duty is protected if his ability to make payments is materially affected by military service. Here, the courts will compare the service member's pre-service income and military income to determine financial condition. The creditor cannot exercise rights of recission, termination, or repossession without a court order.

Maximum rates of interest. If, prior to entering active duty, a member incurs a loan or obligation with an interest rate in excess of 6 percent, the member will, upon application to the lender, not be obligated to pay interest in excess of 6 percent per year. This relief applies during active duty unless the court finds the member's ability to pay has not been materially affected by her military service.

Stay of proceedings. Courts have the discretion to delay a civil court proceeding when the requirements of military service prevent the member from either asserting or protecting a legal right. Usually requests for a stay are granted if the time period requested is limited.

Default judgments. Before a court can enter a default judgment (for failure to respond to a lawsuit or failure to appear at trial) against a military member, the plaintiff must provide the court with an affidavit stating the defendant is not in the military. If the defendant is in the military, the court will appoint a lawyer to represent the defendant's interests (usually by seeking a delay of proceedings). If a default judgment is entered against a service member, the judgment may be reopened if the service member makes an application to the court within 90 days after leaving active duty, demonstrating prejudice and a meritorious defense.

Insurance. A service member's private life insurance policy is protected against lapse, termination, or forfeiture for nonpayment of premiums for a period of military service plus two years. The insured or beneficiary must apply to the Veterans Admin-istration for protection. A new section has been added providing for reinstatement of any health insurance that was in effect on the day before the commencement of active military service, without waiting periods or physical condition restrictions.

Taxation. A service member's state of legal residence may tax military income and personal property. A member does not lose her status as a legal resident of a state solely because of a transfer pursuant to military orders.

Adverse actions. Congress in 1991 enacted Public Law No. 102-12, and amended the SSCRA to prohibit both creditors and insurers from pursuing adverse actions (i.e., notifying credit agencies, denying credit, changing terms) against service members who exercise their rights under the SSCRA.

Statute of limitations. The suspension of the statute of limitations applies to administrative proceedings. The tolling provision does not apply to the IRS's statute of limitations. Lawyers who represent military members need to beware of a laches defense.

Sources: The Grand Forks AFB Legal Office; the Naval Legal Service Office Southeast, Legal Assistance Department, Naval Justice School, Legal Assistance Division.

The SSCRA also serves to toll the applicable statute of limitations, whether for or against the service member, irrespective of whether the service member's service actually affects the exercise of her rights.3

Courts are required to grant a stay where the application of the service member establishes that the member's case will be "materially affected" by virtue of the individual's service in the military. Due diligence and good faith are factors affecting a court's decision on whether to grant a stay and its length.4 Stays are not available for certain written agreements entered into after the commencement of military service, such as leases of real property or automobiles.5

Typically, a military member who writes to the court and provides evidence from his command that leave is not available and that the member's military duties preclude his presence will be granted a stay.6

The SSCRA provides for the protection of all active duty personnel and activated reservists.7 Additionally, certain people not in the military will be afforded the protection of the SSCRA. Specifically, where a proceeding may be stayed under the SSCRA, a party who is not in the military but who is or may be either jointly liable or secondarily liable with someone who is in the military may seek a stay of the proceeding.8

Upon the filing of a bankruptcy petition, the automatic stay imposed by 11 U.S.C. § 362 will prevent creditors from proceeding against the debtor. Typically, the § 341 first meeting of creditors will be held and the case will proceed. When the debtor is a service member, however, the § 341 meeting may not be held for a considerable amount of time, thereby delaying any distribution to creditors even longer than in a typical bankruptcy case. In In re Ladner,9 the bankruptcy court held that the service member/debtor was required to appear at the § 341 meeting to allow his creditors an opportunity to question him.

Typical Bankruptcy Problems

Because Ladner's military duties precluded his appearance at the § 341 meeting, the court continued the meeting until a time that the debtor's military duties reasonably allowed him to be present or following the termination of his military service. Thus, the Ladner court's ruling gave the service member/debtor the protection of the automatic stay and delayed any distribution to creditors.

The SSCRA may also have a profound effect upon the estate of the debtor when a service member is a creditor holding a claim against the estate. In In re A.H. Robins Co.,10 the Fourth Circuit held that the SSCRA served to toll the time in which military member/creditors were required to file proofs of claim. As a result, a service member was permitted to file her proof of claim approximately three years and nine months after the claims bar date, notwithstanding countervailing policy considerations that underlie generally strict enforcement of the claims bar date.

A further delay in the administration of the estate may occur where the debtor has filed an adversary proceeding against a service member. What do the parties and the courts do, for example, when the adversary proceeding is to recover a preference paid to the service member that will substantially affect the plan of reorganization? Where the debtor is a military member, does his time in service apply toward the 90-day preference period for the trustee to recover preference payments if the debtor filed for bankruptcy after leaving the service?

In the case In re Meade,11 the court was asked to determine whether the debtor's military service would be "included in computing the period of 'four months before the filing of a petition in bankruptcy' which attachments must have stood in order not to be null and void...."12 The Meade court concluded that the debtor's military service would not be included in computing the four-month period.13

In doing so, the court reasoned that since the SSCRA extends the period of time in which creditors may rely on a lien as a basis for an involuntary bankruptcy petition, the SSCRA "should also be interpreted to extend the period of time in which the lien is subject to avoidance by the trustee."14

Next, practitioners should be prepared to determine whether the SSCRA effectively precludes the bringing of an involuntary petition against a debtor who is a service member. While such a scenario may benefit a service member/ debtor, creditors may well be forced to bear the burden of a debtor's unpaid debts for an unknown period of time at a potentially high price.

Finally, debtors and creditors should examine the effect of SSCRA § 525 when a service member/creditor wants to object to the discharge of the debtor or the debtor wishes to have a claim of the service member/creditor discharged. Given her military service, a service member/creditor may be overseas or otherwise unable to file a timely objection or opposition to the debtor's discharge. Would such a scenario require a court to withhold granting discharge to the debtor? Alternatively, when the debtor is a service member, would the court extend the time for filing a nondischargeability action until the service member eventually leaves active duty?

These and other unforseen issues have not been resolved, but may pose traps for those unwary of the broad, and sometimes surprising, consequences of the SSCRA. CL


  1. 50 App. U.S.C. § 501 (1940).
  2. 50 App. U.S.C. § 521 (1991).
  3. 50 App. U.S.C. § 525 (1991). See also Conroy v. Aniskoff, 507 U.S. 511, 113 S. Ct. 1562, 123 L. Ed. 2d 229 (1993).
  4. TIC Federal Credit Union v. Diaz (In re Diaz), 82 B.R. 162, 164 (Bankr. M.D. Ga. 1988); Underhill v. Barnes, 288 S.E.2d 905 (Ga. Ct. App. 1982); Lackey v. Lackey, 278 S.E.2d 811 (Va. 1981).
  5. 50 App. U.S.C. § 517 (1942).
  6. Cromer v. Cromer, 278 S.E.2d 518 (N.C. 1981).
  7. 50 App. U.S.C. § 516 (1991).
  8. 50 App. U.S.C. § 513 (1991). But see 50 App. U.S.C. § 524 (1940) (authorizing a plaintiff to proceed against codefendants of a military member).
  9. In re Ladner, 156 B.R. 664 (Bankr. D. Colo. 1993).
  10. 996 F.2d 716 (4th Cir. 1993).
  11. 60 F. Supp. 69 (D. Mass. 1945).
  12. Id. at 70.
  13. Id. at 71.
  14. Id.

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