Yes, we believe it is permissible to charge off an unsecured debt for a delinquent borrower who is entitled to the protections of the SCRA. Charging off a debt is an internal accounting procedure, and we are not aware of any provisions of the SCRA that would prohibit this.

Nor does the SCRA prohibit a creditor from pursuing collection against a borrower who is on active duty military service, provided certain requirements are met. However, your ability to obtain and enforce a judgment or an order of repossession may be significantly delayed, given several protections for servicemembers under federal and Illinois law.

When a debt secured by personal property (such as an auto loan) was made to a borrower before they were on active-duty service, a creditor must obtain a court order before it can seize or repossess the property. However, if the servicemember’s ability to comply with the terms of the loan was affected by their military service, the servicemember may request that the court either stay the proceedings for a period of time “as justice and equity require” or “adjust the obligation to preserve the interests of all parties.” The court also may enter such relief upon its own motion, even when the servicemember does not request it.

In a civil action in which a servicemember does not file an appearance, the court may not enter a judgment until after an attorney is appointed to represent them. The court also has the discretion to stay the proceedings for a minimum period of ninety days if it determines that the servicemember may have a defense that cannot be presented without their presence or counsel has been unable to contact the servicemember to determine if a valid defense exists. Further, if the court determines that a servicemember’s ability to comply with a judgment or order is affected by their service, the court may — on its own motion or upon the servicemember’s request — stay the execution of any judgment or order entered against the servicemember or vacate any attachment or garnishment of money or property in the servicemember’s possession.

In addition to the SCRA, the Illinois Service Members Civil Relief Act (ISMCRA) provides relief from default judgments and orders entered against servicemembers and stays of civil court proceedings. Thus, while your bank may pursue the borrower for the collection of a debt or repossession of a vehicle, your ability to obtain and enforce a judgment or an order of repossession may be significantly delayed under Illinois law.

Also, note that the SCRA and ISMCRA limit interest rates to six percent for the obligations of active military personnel entered into “prior to a service member’s period of military service”. Your bank should reduce the interest rates charged on the unsecured loan and the auto loan if they exceed this amount.

For resources related to our guidance, please see:

• In re Allen’s Estate, 327 Ill.App. 270, 273 (1st Dist. 1945) (“In ordinary business practice, when a customer does not pay his bill and there appears to be no means of collecting it, it is entered as a bad debt. Such accounting procedure is simply a method of evaluating an asset and does not in the slightest manner affect the force or validity of the obligation. If later the debt becomes collectible, there is nothing to prevent its enforcement.”)

• Armed Forces Code, 10 USC 101(d)(1) (“The term ‘active duty’ means full-time duty in the active military service of the United States. Such term includes full-time training duty, annual training duty, and attendance, while in the active military service, at a school designated as a service school by law or by the Secretary of the military department concerned. Such term does not include full-time National Guard duty.”)

• SCRA, 50 USC 3953(a) (“This section applies only to an obligation on real or personal property owned by a servicemember that — (1) originated before the period of the servicemember’s military service and for which the servicemember is still obligated; and (2) is secured by a mortgage, trust deed, or other security in the nature of a mortgage.”)

• SCRA, 50 USC 3953(c) (“A sale, foreclosure, or seizure of property for a breach of an obligation described in subsection (a) shall not be valid if made during, or within one year after, the period of the servicemember's military service except— (1) upon a court order granted before such sale, foreclosure, or seizure with a return made and approved by the court; or (2) if made pursuant to an agreement as provided in section 3918 of this title.”)

• SCRA, 50 USC 3953(b) (“In an action filed during, or within one year after, a servicemember's period of military service to enforce an obligation described in subsection (a), the court may after a hearing and on its own motion and shall upon application by a servicemember when the servicemember's ability to comply with the obligation is materially affected by military service— (1) stay the proceedings for a period of time as justice and equity require, or (2) adjust the obligation to preserve the interests of all parties.”)

• SCRA, 50 USC 3931(a) (“This section applies to any civil action or proceeding, including any child custody proceeding, in which the defendant does not make an appearance.”)

• SCRA, 50 USC 3931(b)(2) (“If in an action covered by this section it appears that the defendant is in military service, the court may not enter a judgment until after the court appoints an attorney to represent the defendant. If an attorney appointed under this section to represent a servicemember cannot locate the servicemember, actions by the attorney in the case shall not waive any defense of the servicemember or otherwise bind the servicemember.”)

• SCRA, 50 USC 3931(d) (“In an action covered by this section in which the defendant is in military service, the court shall grant a stay of proceedings for a minimum period of 90 days under this subsection upon application of counsel, or on the court’s own motion, if the court determines that— (1) there may be a defense to the action and a defense cannot be presented without the presence of the defendant; or (2) after due diligence, counsel has been unable to contact the defendant or otherwise determine if a meritorious defense exists.”)

• SCRA, 50 USC 3934(a) (“If a servicemember, in the opinion of the court, is materially affected by reason of military service in complying with a court judgment or order, the court may on its own motion and shall on application by the servicemember– (1) stay the execution of any judgment or order entered against the servicemember; and (2) vacate or stay an attachment or garnishment of property, money, or debts in the possession of the servicemember or a third party, whether before or after judgment.”)

• Illinois Service Members Civil Relief Act, 330 ILCS 63/60 (“Relief from a final order or judgment entered by default against a service member who has entered military service is subject to Section 2-1401.1 of the Code of Civil Procedure.”)

• Illinois Service Members Civil Relief Act, 330 ILCS 63/75 (“Stay of prosecution; civil matters. The stay, postponement, or suspension of the enforcement of any civil obligation or liability, the prosecution of any civil suit or proceeding, or the entry or enforcement of any civil order, writ, judgment, or decree involving a service member who has entered military service shall be subject to Section 30.25 of the Military Code of Illinois.”)

• Servicemembers Civil Relief Act, 50 USC 3937(a)(1) (“An obligation or liability bearing interest at a rate in excess of 6 percent per year that is incurred by a servicemember, or the servicemember and the servicemember’s spouse jointly, before the servicemember enters military service shall not bear interest at a rate in excess of 6 percent . . .”)

• Servicemembers Civil Relief Act, 50 USC 3937(d)(1) (“The term ‘interest’ includes service charges, renewal charges, fees, or any other charges (except bona fide insurance) with respect to an obligation or liability.”)

• Illinois Service Member Civil Relief Act, 330 ILCS 63/40 (“Interest or finance charges collected or charged to a service member who has entered military service, or the spouse of that service member, in connection with an obligation entered into on or after the date of August 22, 2005, but prior to the date that the service member entered military service, shall be subject to Section 4.05 of the Interest Act.”)

• Illinois Interest Act, 815 ILCS 205/4.05 (“Notwithstanding any contrary provision of State law, but subject to the federal Servicemembers Civil Relief Act, no creditor in connection with an obligation entered into on or after the effective date of this amendatory Act of the 94th General Assembly, but prior to a service member's period of military service, shall charge or collect from a service member who has entered military service, or the spouse of that service member, interest or finance charges exceeding 6% per annum during the period of military service.”)