Divorce Attorneys Need to Avoid This 1 SBA Loan Pitfall
A settlement or judgement in a divorce does not absolve your client of liability on a defaulted SBA loan. Don't leave your client on the hook.
We Provide Nationwide Representation of Small Business Owners, Personal Guarantors, and Federal Debtors with More Than $30,000 in Debt before the SBA and Treasury Department's Bureau of Fiscal Service
No Affiliation or Endorsement by any Federal Agency
Millions of Dollars in SBA Debts Resolved via Offer in Compromise and Negotiated Repayment Agreements without our Clients filing for Bankruptcy or Facing Home Foreclosure
Millions of Dollars in Treasury Debts Defended Against via AWG Hearings, Treasury Offset Program Resolution, Cross-servicing Disputes, Private Collection Agency Representation, Compromise Offers and Negotiated Repayment Agreements
Our Attorneys are Authorized by the Agency Practice Act to Represent Federal Debtors Nationwide before the SBA, The SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service.
Client personally guaranteed SBA 7(a) loan balance of $58,000. The client received a notice of Intent to initiate Administrative Wage Garnishment (AWG) Proceedings. We represented the client at the hearing and successfully defeated the AWG Order based on several legal and equitable grounds.
Clients personally guaranteed SBA 7(a) loan balance of over $300,000. Clients also pledged their homes as additional collateral. SBA OIC accepted $87,000 with the full lien release against the home.
Clients executed several trust deeds pledging seven (7) real estate properties and unconditional personal guarantees for an SBA 7(a) loan from the participating lender. The clients' small business failed and eventually defaulted on repayment of the loan exposing all collateral pledged by the clients. The SBA subsequently acquired the loan balance from the lender, including the right to liquidate and collect all pledged collateral pursuant to the trust deed instruments.
The Firm was hired to negotiate separate release of lien proposals for all 7 real estate properties. In preparation for the work assignment, the Firm Attorneys initiated discovery to secure records from the SBA and Treasury's Bureau of Fiscal Service. After reviewing the records and understanding the interplay between the lender and the SBA, the attorneys then prepared, submitted and negotiated the release of lien (ROL) for each of the 7 real estate properties for consideration.
After submitting the proposals, the assigned SBA Loan Specialists approved each ROL package - significantly reducing the total SBA debt claimed.
If your SBA loan is in default and you are working with your lender to wind down the business and settle the deficiency with an offer in compromise, time is of the essence. Banks generally do not wait much longer than 60-90 days after the defaulted borrower (business) has been liquidated or shut down to tender an OIC to the SBA for consideration which, if accepted, could potentially release the guarantors from the deficiency for a lesser amount. Generally speaking, the bank or CDC will send you what is commonly known as a Notice of Default, Acceleration and Demand for Payment for the entire loan balance due. If litigation is not a fiscally viable option and after certain collateral liquidation, you may be offered the chance to submit an SBA OIC with the bank or CDC for SBA consideration. If your case is ultimately transferred to the SBA, you should receive a 60-day Official Notice and demand for payment. If you fail to timely submit an SBA OIC within the administrative time frame as noted in this letter, the SBA will then refer your debt to the U.S. Department of Treasury for enforced collection, and thus, you will probably lose your one (1) time shot to settle for less than what is purportedly owed on the SBA debt through the SBA Offer in Compromise process..It should be noted that Treasury rarely collects on these bad loans directly – rather they hire private collection agencies (PCAs) to handle this. These PCAs don’t know anything about the history behind the loan – their job is to be ruthless in their collection endeavors as they generally receive a generous percent of the collected amount or actually bought the so-called junk federal debt for pennies on the dollar. Several of these federally approved private collection agencies or junk debt buyers are particularly nasty, and rarely settle for less than 50% of the outstanding amount as the incentives for collection, litigation and judgment pursuit are very high. Contrast that with the results that we have reviewed and settled and it’s easy to see the importance of addressing your outstanding SBA debt sooner rather than later, whether you’re working with a non-attorney consultant, an SBA Attorney or Federal Agency Practitioner, or attempting to do it yourself. If you think your banker is nasty or difficult to work with, you don’t want to experience the tactics of these collection agencies or junk debt buyers.
Creditors' committees commonly occur in traditional Chapter 11 cases, but they need a cause in Subchapter V cases.
Subchapter V trustees' primary function is to create a standard plan with the debtor and creditor. They do have the authority to audit the debtor's finances, but their primary purpose is mediation.
The reason for this is Congress sees impartial third-parties' increasing the likelihood of a sound resolution among the debtor and its creditors. Unbiased third parties are especially useful for small businesses whose creditors are tentative as a result of COVID.
What Is The SBA Office Of Hearings And Appeals (OHA) And What Is Their Jurisdictional Power? CollapseThe Office of Hearings and Appeals (OHA) is an independent office of the Small Business Administration (SBA) established in 1983 to provide an independent, quasi-judicial appeal of certain SBA program decisions. The SBA OHA has authority to conduct proceedings in the following cases: Collection of debts owed to SBA and the United States under the Debt Collection Act of 1982, the Debt Collection Improvement Act of 1996, and part 140 of the aforesaid chapter; (t) Any other hearing, determination, or appeal proceeding referred to OHA by the Administrator of SBA, either through an SOP, Directive, Procedural Notice, or individual request by the Administrator to the SBA/OHA. The SBA OHA’s office is on the eighth floor of SBA headquarters above the Federal Center SW metro stop. Their office address is: 409 Third Street, SW, Eighth FloorWashington, DC 20416
A charge off is justified when the SBA has complied with all requirements of collection and liquidation and further collection of any substantial portion of the debt is doubtful. The determination to justify a charge off may be based on one or more of the following:a) All efforts must have been exhausted in cost-effective recovery from:1. Voluntary payments from the borrower;2. Liquidation of collateral;3. Compromise with obligor leaving only a deficiency balance; and4. Consideration has been given to any legal remedies available so that no further reasonable expectation of recovery remains.b) Estimated costs of future collection exceed any anticipated recovery;c) Obligor cannot be located or is judgment proof;d) The Lender/SBA’s rights have expired (e.g., statute of limitations, restrictions of State law, SBA policy);e) Debt is legally without merit;f) Adjudication of a Chapter 7 Bankruptcy as a no asset case, or completion of Chap 11/13 case;g) The inability of the Lender to effect further worthwhile recovery.
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
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