To be in the reserves, you better have some
By Daniel P. Ray and Michael R. Abramowitz • Bankrate.com

If you are a military reservist, be prepared for an attack on your finances should you be called to active duty.

Ask Dr. Jack Chitwood. For him, the price of serving his country was bankruptcy.

"I guess most of us went into it somewhat blind, thinking Uncle Sam would take care of us," says the Abilene, Texas, orthopedic surgeon and former National Guardsman, whose practice dried up during his five months in the Gulf War. "And obviously, Uncle Sam doesn't."

For Chitwood and many other reservists called to active duty, war is financial hell.

"The guys who took the biggest bath in the Gulf War were the doctors," states Brigadier Gen. (Ret.) Dave McGinnis, of the New York National Guard.

McGinnis worked until retirement at the Pentagon for the National Guard Bureau, as an asst. secretary of reserve affairs, overseeing the Gulf War, as well as serving six tours of duty in Vietnam, and one in Germany.

"They still have to pay all the overhead of their practice while serving," he adds. Many lost whole practices. Patients went other ways and so did their nurses."

Military pay hikes not enough
Military pay has improved, but most reservists earn more in their civilian jobs. So unless reservists have their own reserves of ready cash, a lengthy tour of duty can produce financial wounds. What's more, their main legal protection provides only temporary relief from the bills that can pile up during a lengthy service overseas.

Loch Sturrock, an E5 2nd class petty officer with the U.S. Navy reserve, states the financial risks are well worth the sacrifice.

With a call-up, he'll see his paycheck cut nearly in half from a salary "in the 50s" as a contract programmer for AT&T to approximately $21,000 to serve his country. He will also receive an additional $300 per month hazardous duty pay. Reservists receive cost of living adjustments for where they live, marriage, and dependents. In Sturrock's case, that adds up to an additional $5,000 a year, making his annual military salary an estimated $29,600.

While serving in a hostile situation, Sturrock's income is tax-free.

"I guess there's no way to prepare yourself for that kind of hit," says Sturrock. "But I am willing to take that sacrifice for the greater good of the country. It's difficult, but you tighten your belt straps, and you make cuts where you can."

Taking the financial bull by the horns
The best advice for reservists from financial experts -- get active now, before the paperwork arrives.

Anne Pollard Brust is a financial educator with Debt Counselors of America, but previously provided financial counseling to Marines. "If you are going to stay in the reserves, that's a good reason to have savings, so you'll have that cushion for when you get called to active duty."

Sturrock has a list of creditors that he plans to notify once he receives a call to active service including his mortgage lender, bank, credit card company, and car loan.

He intends to contact his life insurance company, to see if there are additional benefits available during active service.

Changing nature of reserves
When Charles L. Cragin, former acting assistant secretary of defense, started in the reserves in 1968, he says, "You knew the only time you were going to be called up was if the Russians came charging through the Fulda Gap. We've totally changed the way we've integrated the Guard and reserves into this force. I like to say the word is spelled r-e-s-e-r-v-e, but it's pronounced re-serve."

When reservists are called to action, their finances end up in harm's way.

Congress recognized that in 1940, when it passed the Soldiers and Sailors Civil Relief Act. It remains the chief financial protection for service members today. When a soldier is called to active duty, the law:

• Bars evictions, when the rented housing costs less than $1,200 per month.
• Prevents default judgments for failure to appear in court in lawsuits and trials.
• Stays civil proceedings.
• Caps interest rates on pre-existing loans -- including mortgages, credit cards and personal loans -- to 6 percent.

The protections start the day that active service begins and ends as soon as it ends, so the law buys time, not forgiveness. Reservists called to active duty remain responsible for their mortgage, credit card and other payments.

Some institutions friendly
In addition to the legally required protections, some financial institutions -- particularly those devoted to serving military personnel -- soften the financial blow of overseas duty.

"During Desert Storm, we set up a department that members contacted to have their bills paid for them while they were on active duty," says Sherry Harlow, marketing director for Eglin Federal Credit Union in Fort Walton Beach, Fla.

The Soldiers and Sailors Act puts actions against you on hold, but the day you walk back in your door, creditors are free to return and demand payment.

The time to prepare for those waiting for a call-up, is now. Here's what a reservist should expect and do before, during and after the call to active duty:

Before active duty

• Build up several months' savings. It's good advice for anyone, but essential to reservists who knows their paychecks will shrink.
• Create a financial plan. You know what your income is now; create a budget for your new level of income. Check the current pay for activated reservists through your command or through the Defense Finance Accounting System.
• Go to a trusted family member and leave money to pay bills. For good measure, you may want to grant that person power of attorney.
• Contact creditors if you are going to impose the 6 percent cap called for in the Soldiers and Sailors Act, or if the hardship is going to cause you to miss payments.
• Become familiar with military-provided help. Different services have different names for the programs, but all have financial counseling and legal help available for soldiers.

During active duty

• That budget you drew up before you set sail? Stick to it.
• The military provides a set number of overseas calls. Use them to keep in touch with loved ones. The high cost of chatting with folks on the home front came back to haunt some Gulf War reservists.

"We did see lots of problems in the Gulf War with people running up thousands in phone bills, and they have to eventually pay them," Brust says. "Or learn to start writing."

After active duty
The minute that Johnny comes marching home, the obstacles to creditors fall away. Instantly, soldiers turn into civilians facing bills, ruined credit ratings -- even the repo man and foreclosure proceedings.

That's what faced Dr. Chitwood. He had left a growing practice to serve in the Gulf War in 1991, heading up a 400-bed hospital in Riyadh, Saudi Arabia, and earning only a fifth of his stateside pay.

"I was out for about five months, just long enough to kill the practice," he says. With creditors hounding him and little money coming in, he declared bankruptcy.

"My problem was I'm a solo practitioner. Physicians in groups seem to do a little better," he says. "Some of the groups actually paid their expenses while they were gone, but a solo practitioner, what you earn from day to day is what you have.

Cragin, the former head of the reserves, has only limited sympathy for Dr. Chitwood, who has since re-established himself, professionally and financially, in Abilene. Planning ahead financially should be part of the reservist's plan, Cragin says.

In the three decades he served as a reservist, Cragin says, "I was a lawyer. I had clients, and I knew that if I was called, my income was going to drop and I was going to lose some clients. But I was proud to serve."

-- Updated: March 18, 2003