Does The Compromise With One Or More Obligor Release The Liability Of The Remaining Obligors?
A compromise with one or more Obligors does not release the continuing liability of any remaining Obligors. Each entity or individual responsible for the debt must develop its/his/her own SBA OIC.
What is an SBA Offer in Compromise?
An SBA Offer in Compromise is generally on out-of-court work out option for a business which probably needs to shut down and there is no reasonable turnaround plan that can be executed to resurrect it from its current financial quandary. Furthermore, this remedial option is best utilized when it is apparent that the business’s pledged collateral is insufficient to pay off the outstanding loan balance and the personal guarantees of the owners are at stake.
What are the criteria for a business to file under Subchapter V?
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.
What Factors Are Considered As Part Of The Offer in Compromise Process?
Each individual SBA OIC will be based on a case by case review of the Borrower’s or Guarantor’s individual financial situation and certain “litigative risks.” Factors that will be considered are:• An assessment of the debtor’s ability to pay and potential earnings capacity• Health and life expectancy• Local economic conditions• Equity in pledged or reachable assets• Settlement arrangements with other creditors• Applicable exemptions available to debtor under State and Federal law• The cost, time and risk of collection litigation
How Can the SBA Go After My Personal Assets When My Business Is the Party To The Loan Agreement?
Even if your business incorporated (i.e. corporation, Limited Liability Company), almost all lenders and the SBA required that you sign personal guarantees as part of the initial loan funding process. Therefore, despite the fact that your business entity signed on the Loan Agreement with the bank or CDC, you would still be liable as a result of the personal guaranty that you or any other individuals signed. The personal guaranty, upon default on the loan, gives the bank or CDC and the SBA direct access to your personal assets such as your home, personal bank accounts, investments, real estate, etc.
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