Resources for Chapter 13 Petitioners

 

 

Notice

This information is not meant to convey legal advice to an individual seeking Chapter 13 bankruptcy reorganization, but is meant strictly as an educational tool.

 

 

 

 

What if I am called to active military service?

By Joseph A. Ferrise, Staff Attorney for Chapter 13 Office

When Bankruptcy Cases are Subject to the Soldiers’ and Sailors’ Civil Relief Act

(Published in NACTT Quarterly, Spring 2012)

The federal statute that protects active duty members of the military service from interrupting their duties to address civil proceedings is the Soldiers' and Sailors' Civil Relief Act (“SCRA”) of 1940 located at 50 U.S.C. § 501. The Act was enacted to protect service members of World War II from the burdens of pending litigation stateside.  This law carries on today and continues to provide unique protections to the men and women that serve in the United States military.  The purpose behind the SCRA still resonates today and serves to promote national defense by giving service members certain unique protections in pending civil actions. By providing for the temporary suspension of legal and administrative proceedings and transactions that may adversely affect service members during their military service, the SCRA enables service members to concentrate on the defense of the nation. 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 service members protected by the SCRA are either members of the uniformed armed forces on active duty, commissioned officers of the Public Health Service National Oceanic and Atmospheric Administration, and also National Guard members called to active service for a period of thirty (30) or more days.

Under the SCRA, a stay of civil proceedings against persons on active duty in the American military may be granted in the sound discretion of a court upon a showing that the applicants' military status inhibits or prevents them from preparing, maintaining or presenting an adequate defense to the pending action.  50 U.S.C. § 501.  Among other things, the SCRA allows for forbearance and reduced interest on certain obligations incurred prior to military service, and it restricts default judgments (50 U.S.C. § 521) against service members and foreclosures or evictions of service members and all their dependents. The SCRA does not extinguish any liabilities or obligations, but simply suspends all legal action and enforcement until such time as the ability of the service member to answer or comply is no longer materially impaired by reason of military service.  Generally, the applicability of the provision of the SCRA end when a service member is either discharged from active duty or within 90 days of discharge from their respective branch of service, or regrettably when the service member dies.

The SCRA and Bankruptcy Proceedings

The Soldiers' and Sailors' Civil Relief Act also has important application to bankruptcy proceedings. It is proper to apply the Act to bankruptcy because a bankruptcy case is a civil proceeding conducted under the supervision of a United States district court and the Act includes as bankruptcy “proceedings” any events that occur in the bankruptcy case, such as motions to dismiss a Chapter 13 debtor/service member’s case for nonpayment. See In re Symington, 209 B.R. 678, 684 (Bankr. D. Md. 1997); The Baltimore Sun Co. v. Astri Investment Management & Securities Corp., 88 B.R. 730, 736 (D. Md. 1988).

SCRA Applied to Creditors

The SCRA also applies to service members that are creditors in a bankruptcy proceeding. In In re A.H. Robins Co., a creditor Anderson was a major in the U.S. Army stationed in Hawaii from June of 1983 to September of 1989. 996 F.2d 716 (4th Cir. Va. 1993). She had suffered injuries that stemmed from a contraceptive device surgically implanted in her that was manufactured by A.H. Robins Co. In 1985 A.H. Robins Co. filed a Chapter 11 case and included a nationwide notification campaign to inform potential claimants of their rights under the plan of reorganization. The claims bar date was set for April 1986. Anderson had no knowledge of the filing and when she learned of the bankruptcy case, filed her proof of claim in January 1990. Her proof of claim was accompanied by a motion that requested leave to file her claim as a timely claim on the grounds that her status as an active service member during the case and the application of the Section 525 of the SCRA operated to toll the running of the claims bar date to her. The bankruptcy court denied Anderson’s motion and directed the claim be allowed but was only to be treated as a late filed claim and the district court affirmed the bankruptcy court’s ruling. The Fourth Circuit vacated and remanded the lower courts’ orders holding that the language of the SCRA operates to allow Anderson extra time to file her proof of claim given the impediments to her participation in the plan due to her military service. The Court recognized there would be some issues in this application of the SCRA that cause impairment of the parties to finalizing the rights of other interested parties but interpreted the statute as clearly allowing the claims bar date to toll in favor of Anderson.  Anderson’s claim as a creditor was then treated as one that was timely filed due to the language of the SCRA.

Raising the SCRA as a Valid Defense

How a service member obtains relief under the SCRA can happen in a variety of ways. Usually the service member or their counsel, may choose to inform the court of the service members military duties if and when they should conflict with the scheduling of various facets of a civil action. There is no burden of proving eligibility under the Act. It then becomes the function of the court to sometimes raise, and always determine, whether the SCRA should apply and allow the service member a stay of the proceedings at hand. The varieties of procedural steps that can trigger the provisions and protections of the SCRA are described in the U.S. Supreme Court opinion that follows in a ruling that is still prevalent thoughts on the issues today.

Boone, a service member, was a defendant in a state court proceeding requiring an accounting based on his role as trustee for his minor daughter’s trust fund. Boone v. Lightner, 319 U.S. 561 (1943). The discovery process continued, allowing each side to obtain the evidence they sought. Boone, however, could not be present for the trial due to his military service and he raised the defense of the SCRA in the hopes of staying the proceedings until he could return from leave. The trial court denied his request for an adjournment based on the SCRA and the jury found him to be liable as trustee. Boone appealed all the way to the Supreme Court where the Court affirmed the trial court’s declination to apply the SCRA. The Court held that because the service member’s ability to defend himself was not materially affected by his military service, the denial of the stay was allowed pursuant to the SCRA. The most important standard that has reverberated through the present from the Supreme Court’s holding in Boone is that there is no burden of proof requirement necessitated by a party seeking to apply provisions of the SCRA as a court may stay proceeding based on the Act on its own motion if in the interest of a fair judgment.

Therefore, a debtor in active service who failed to make the necessary payments into a bankruptcy plan could be held to the same penalty, such as dismissal of the filing, as any other party.  The service member may be able to request a stay of the proceeding or proceedings, however, which ultimately allow the case to be dismissed.  Section 521 of the SCRA contains the provisions allowing service members to continue civil proceedings in limited contexts.  Generally, such a stay must be justified by a sufficient showing of prejudice if the civil action is allowed to proceed. Royster v. Lederle, 128 F.2d 197 199 (6th Cir. 1942).

Boone stands for the proposition that a continuance should not be automatically granted upon the mere showing that a party is on active duty in the military under the SCRA. Boone at 565. See also, Deacon v. Witham, 499 N.Y.S.2d 317, 319 (1985). Rather, the trial court must determine whether, in its discretion, the party's defense will be materially affected as a result of military service. Boone at 565. In many cases where the service member has hired bankruptcy counsel to represent their interests in a case, the clandestine nature of many military operations often prevents regular communication about the case and lengthy continuance is often warranted.  

For example, the SCRA should have no impact on a motion by a Trustee seeking dismissal of a Chapter 13 case for nonpayment into the plan.  The Act does not suspend an obligation of military service members to continue to make payments into their plan but may allow for a stay of the proceedings until an adequate defense may be prepared and maintained, if the debtor’s obligations to the military could materially affect the defense.

SCRA Applied to Co-debtors

The protections of the SCRA also extend to co-debtors. See In re Cockerham, 336 B.R. 592 (Bankr. S.D. Ga 2005). But the protections of the SCRA are designed to protect the service member so a Court cannot use the SCRA to protect a co-debtor while granting no protection to the service member.

In this case, the Debtor and service member Trevor Cockerham filed a Chapter 13 petition and plan which included a provision to surrender his 2000 Chevrolet Silverado. Both the Debtor and his wife Angela Cockerham were co-debtors on the vehicle to Creditor General Motors Acceptance Corporation. At the same time the Chapter 13 case was proceeding, the Cockerham were in the process of divorcing in state court. Mr. Cockerham was deployed to Iraq shortly after his petition was filed.  When the creditor moved for relief from stay on the Silverado the Debtor was surrendering, Mrs. Cockerham objected.  

The Bankruptcy Court held that SCRA allowed the Court to stay an action or proceeding to the Debtor but failed to extend the stay to the codebtor, reasoning that the protections that can in certain circumstances be extended to codebtors under the SCRA are contingent upon the same protections being extended to the service member.

Conclusion

The SCRA has provided a useful mechanism in courts throughout the country for over seventy (70) years. The Act will likely continue to develop in bankruptcy cases, as filings continue to increase and new waves of service members become involved in civil actions every year.

  
One Cascade Plaza, Suite 2020 Akron, OH 44308 • Phone (330)762-6335 • FAX (330)762-7072