Being in the military poses unique problems for military personnel and their families. Sometimes, as a result of circumstances like relocation or deployment of a spouse, a military member may fall behind on payments of his or her debts. A person who is behind on payments may be viewed in the military as irresponsible, even when the person fully intends to pay. Thus, finding yourself in debt and in the military can seriously hamper your career plans and goals. Understanding how the military views those in debt may help you to avoid common mistakes and save your career.
How Being in Debt Can Affect Your Career
Generally, people who are in the military have an obligation to pay their “just financial obligations” in a proper and timely manner.
Debts are considered “just” when the military member agrees that he owes the debt or the debt has been reduced to a judgment which conforms to the Soldiers’ and Sailors’ Civil Relief Act.
If you don’t pay your debts, you risk either being formally disciplined or even administratively discharged with a loss of benefits if:
- You act deceitfully or lie
- You commit a fraudulent act
- You intentionally refuse to pay your debts for reasons other than a lack of funds to do so.
Even if your debts have been discharged in bankruptcy, you can be disciplined for dishonorable failure to pay just debts committed before you filed bankruptcy.
The military does not discourage bankruptcy and feels it is an appropriate and legally permissible choice to make if you are so indebted you can’t dig your way out. Being over indebted can be viewed as a larger security risk than bankruptcy.
On the other hand, it is unlikely that a military member would be disciplined because he or she has made some poor financial decisions and finds himself owing more than he can pay without deliberately meaning to do so.
In deciding whether to discipline a military member because of his indebtedness, the reason the member is in debt may become quite important.
Being in debt can affect how much responsibility is given to a military member. Usually, the military considers a person in debt to have acted irresponsibly and may find that his failure to pay just debts is a consideration in:
- Obtaining/retaining security clearances
- Granting an advancement in rank
- Offering special duty assignments
- Qualifications for re-enlistment or extension of enlistment
- Determining general character and trustworthiness of the military member.
When the Debt Collector or Creditor Contacts Your Commanding Officer
A person in the military may feel like an easy target for debt collectors and creditors. To collect the debt, the creditor or collector often sends a letter to the debtor’s commanding officer, called a letter of indebtedness, stating that the individual is behind on his or her payments. The letter is sent in the hope that the officer will put pressure on the debtor to pay the debt.
A recent study conducted by Virginia Polytechnic Institute on the financial state of the Navy found that in one year, the Navy processed more than 123,000 letters of indebtedness. Such practices, although widespread, may violate the Fair Debt Collections Practices Act or other laws designed to protect consumers.
Whether it is proper for a commanding officer to receive a letter of indebtedness will depend on whether the sender is a debt collector or a creditor.
A “debt collector” is someone whose principal business is collecting a debt for another person or business. A “creditor” is a business or person who first extended you credit or loaned you money, such as a collection department in retail stores, finance companies or banks.
It is generally against the law, under the Fair Debt Collection Practices Act, for a debt collector to contact a third-party, such as a person’s employer, merely to inform that person that the debtor owes a debt, without the permission of the debtor or a court judgment. However, the call will probably be allowed under the Act if the reason the collector is calling the third-party is:
- To ask the third-party how to locate the debtor or
- To inform someone who has a legitimate business reason to know about the debt (for example, wage garnishment or alimony).
There may also be related state laws that protect consumers.
Contacting the commanding officer may often yield little results for the debt collector since the officer usually has no power to get involved in disputes or enforce agreements between the debtor and the debt collector. Likewise, the officer usually will not act as a debt collector on behalf of someone trying to collect a debt from a service member.
Certain branches of the military may even have a procedure where letters of indebtedness from debt collectors are returned with no action taken if the correspondence violates the Fair Debt Collection Practices Act or state statutes. A military member could probably sue a debt collector for contacting a commanding officer without his permission or a court order under the Act.
Letters of indebtedness sent to a commanding officer from creditors are not prohibited by the Fair Debt Collection Practices Act. In that case, the only power a commanding officer may have over payment of the debt would be to contact the military member and to ensure that the member contacts the creditor in a timely manner to discuss his intentions regarding repayment.
The communication to the military member may also include:
- Counseling regarding repayment of debts (such practices as requiring the service member to submit a statement showing his monthly income and detailing how money is spent each month to help the member budget his money more effectively)
- Referral to the legal staff, and
- Referral to financial counseling.
The commanding officer may also review the terms of the debt to ensure that the creditor has met standards of fairness and has complied with federal disclosure requirements under law.
Any requests by the creditor to furnish information about the member’s credit rating will probably not be answered by the commanding officer. However, the commanding officer may release information about:
- The member’s duty station
- Verification that the member is in the military service
- Duty address, and
- Basic pay information.
What Resources Are Available to Help
Remember that when a service person gets into financial hot water, it could cost him his job. The worst thing anyone with a financial problem can do is nothing. Contact one of the following resources to get help immediately:
- Legal Assistance Offices
- Military Family Service Centers
- Military Financial Specialists.
The Soldiers’ and Sailors’ Civil Relief Act provides protection to members of the military by limiting claims that can be made against them while in military service. Some of these protections involve:
- Credit transactions
- Court proceedings
- Statute of limitations, and
Finally, becoming aware of how you spend your money to avoid becoming deeper in debt may be vital to your job security.
Experts cite a variety of reasons military members get into debt including financial scams, loneliness and frequent moves which may cause a working spouse to lose a job.
Try to break the cycle of becoming in debt by:
- Getting help from experienced professionals who have dealt with problem debtors.
- Seeking help for the psychological causes of getting into debt to help control your spending
- Making payments toward lowering your debt without adding to the debt load
- Educating yourself about smart spending, scams and financial planning.