SCRA & Contract Penalties: Fees a Court Can Erase

Contracts punish nonperformance. Miss a payment, break a term, deliver late, and the penalty clauses fire: late fees, default charges, liquidated damages. For a servicemember, the trigger is often the service itself. You could not perform because of where the military sent you. The SCRA answers that with a short, sharp provision most people have never heard of.

What § 3933 does

50 U.S.C. § 3933 has two parts, and they work at different moments.

No penalty accrues during a stay. If a court has stayed an action to enforce the terms of a contract against you, a penalty may not accrue for failing to comply with that contract during the period of the stay. When you pause a case with the 90-day stay, the meter on penalties stops too. The stay does not just buy time; it freezes the extra charges that would otherwise pile up while the case is on hold.

A court can reduce or waive the penalty. Even without a stay, a court may reduce or waive a fine or penalty for nonperformance if two conditions are met: you were in military service at the time the fine or penalty was incurred, and your ability to perform the obligation was materially affected by that service. This is the heart of it. The judge has express statutory authority to erase a penalty that exists only because the military made compliance impossible.

Why the “penalty, not the debt” line matters

Section 3933 is precise about what it reaches. It targets the fine or penalty for nonperformance. It does not cancel the underlying contract or forgive the principal. If you owed the money, you still owe the money. What comes off is the punishment layered on top: the $39 late fee that recurred every month you were deployed, the default-rate penalty, the liquidated-damages figure baked into a service agreement.

That distinction is what makes the provision realistic and durable. Courts are far more willing to strip a punitive charge that service caused than to void a whole contract, and the statute asks only for the former.

What it is worth

The value is the stack of penalties you make disappear. Consider a servicemember who fell behind on an installment contract during a nine-month deployment:

Charge	Without § 3933	With § 3933
Recurring late fees, $39 x 9 months	$351	Court may waive
Default penalty on the balance	Added	Court may reduce or waive
Penalties accruing during a court stay	Keep piling up	Cannot accrue
Principal you contracted to pay	Still owed	Still owed

Individually these look small. Across multiple accounts and a long deployment they add up to real money, and they are exactly the kind of charge that turns a manageable balance into a spiral. Pair § 3933 with the 6% interest cap on the same account and you hit both the rate and the penalties at once.

Kill service-caused contract penalties

1. Pull statements for every contract where penalties, late fees, or default charges hit while you were in service. Total the penalty portion separately from the principal.
2. For each, document how your military service materially affected your ability to perform on time: orders, deployment dates, field or overseas duty.
3. If a creditor has sued to enforce the contract, request a § 3932 stay. Once granted, no penalty can accrue during the stay under § 3933.
4. Ask the court to reduce or waive the penalties under § 3933, showing you were in service when they were incurred and that service materially affected performance.
5. Bring it to your installation legal assistance office first. JAG attorneys can frame the request and tell you what your court expects. The help is free.

What this protection is not

Section 3933 is not debt forgiveness. It removes penalties for nonperformance; it does not erase the principal you agreed to pay. Go in expecting to still owe the underlying obligation.

It is not automatic. Except for the ban on penalties accruing during a court-ordered stay, relief comes from a court exercising its discretion. You have to raise it, and you have to make the two-part showing: in service when the penalty was incurred, and ability to perform materially affected by that service. A penalty you incurred for reasons unrelated to your service is not covered.

And it is not a rate cap or a lease-exit right. If your goal is a lower interest rate, that is § 3937. If it is walking away from a lease when orders move you, that is the lease-termination rules. Section 3933 does one job well: it makes sure the penalties for missing a contract term do not become a second punishment for serving. Used alongside the stay and the interest cap, it closes the gap those tools leave open.

The law behind this: 50 U.S.C. § 3933

Fines and penalties under contracts: no penalty accrues during a stay, and a court may reduce or waive a penalty caused by military service — read the statute.