SBA Debt Attorneys

Subchapter V debtors must file their reorganization plan within 90 days of entering bankruptcy.

If the debtor cannot commit to a reorganization plan within 90 days, the debtor may file an extension plea. The bankruptcy court decides on whether to approve or deny the extension plea.

Approval of the plan will depend on whether any creditors object and the court's own calendar.

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Under the Federal Statute of Limitations Act (28 U.S.C. 2415(a)), an action by the Government to recover upon a contract for money damages is barred unless filed within 6 years from the date the cause of action accrued. The date of the accrual of the cause of action may be subject to various interpretations. However, in the event of partial payment or written acknowledgement of the debt, the cause of action again accrues at the time of the partial payment or acknowledgement. 28 U.S.C.A. § 2415(a).

While the SBA prefers a cash settlement offer (i.e., lump sum payment or cash compromise) with an SBA OIC Package, a monthly installment payment plan not to exceed 5 years or 60 months (term compromise) may also be considered if necessary. If a term compromise is desired, the SBA may also require a lien on any worthwhile collateral that may be available to secure the agreed upon balance due.

To be eligible for this option, a debtor must meet the following criteria:

• Engaged in commercial activity
• Total debts must be less than $2,725,725 (both secured and unsecured)
• At least half of the debts must be due to business activity
• The principal activity is not a single-asset real estate operation

The CARES Act further expanded the eligibility for businesses to qualify under this bankruptcy path.

This legislation increases the eligibility pool to also include companies with up to $7,500,000 in debt (both secured and unsecured) to reorganize under Subchapter V. This is a significant increase from the otherwise limit of $2,725,625.

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If the principal debtor used his/her primary residence as security for a loan to fund the small business, there are available loan modifications.

If as part of your SBA loan, you pledged your primary residence as collateral, neither Chapter 7 or Chapter 13 bankruptcy will likely help in the event of default.  However, Chapter 11 Subchapter V may help.

For instance, a small business debtor's plan may modify the rights of a holder of a claim secured by the principal residence of the debtor if the new value received in connection with the granting of the security interest was:

• not used primarily to acquire the real property; and
• used primarily in connection with the debtor's small business

Therefore, you could possibly use the Chapter 11 Subchapter V to save your house and modify the terms of repaying the loan if you pledged your house as collateral as part of your personal guarantee.  You will, more than likely, not rid yourself of the lien.  Preserving your home constitutes your goal with the new bankruptcy code.  If you have no other options, you should explore the new bankruptcy option.

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