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Can I Use an SBA Loan to Pay Off Personal Debt?
Can I use an SBA loan to pay off personal debt? Read further to discover how you can and can't use your SBA loan funds.
The federal government can garnish up to 15% of your paycheck without first obtaining a civil court judgment. This can strike at the heart of your finances.
Book a Consultation CallThis percentage may seem modest, but it can accumulate quickly, especially for those living paycheck to paycheck. The administrative wage garnishment process allows the government to take a portion of your paycheck without first obtaining a civil court judgment. As such, the SBA or other creditor agencies must give you notice thirty days in advance and an opportunity to request a hearing or negotiate a payment plan. Courts have interpreted the six-year statute of limitations for actions for monetary damages as applicable only to lawsuits filed in court. It does not apply to non-judicial collection methods, such as administrative wage garnishment.
Administrative wage garnishment can hamper your finances. Unless you agree in writing to a higher amount, the government can garnish your disposable pay up to 15%. It's crucial to understand that “disposable pay” is calculated after mandatory deductions, so knowing your deductions can help you estimate the true impact of garnishment. Federal law also limits total garnishments to 25% of disposable pay. Therefore, if you have other garnishments, the total of all garnishments, including the federal government, cannot exceed 25%.
"Disposable pay" means your pay after the deduction of health insurance premiums and any amount required by law to be withheld. Such amounts include Social Security taxes, withholding taxes, Medicare, etc. Therefore, if you had a previous garnishment of 15% in place and then the government obtained an administrative wage garnishment order against you, the administrative wage garnishment would be limited to an additional 10% of your income. Taking 15% of your paycheck can really affect your ability to pay your bills, raise your kids, and save for retirement. Many individuals do not realize that even small garnishments can drastically impact your budgeting and future financial goals, making it imperative to take action if you receive notice of garnishment.
As soon as you receive the notice of intended administrative wage garnishment, you must request a hearing. Alternatively, you can contact the Treasury and arrange for a payment plan. If you request a hearing timely, an administrative wage garnishment cannot start until you've had a chance to present your case. Be proactive; it’s essential to keep records of all communications and ensure prompt submission of your hearing request to avoid complications. If you fail to submit a hearing request promptly, the administrative wage garnishment will start.
Going forward, you may present evidence that you don't owe the debt, the debt is not enforceable, or the amount of the debt is incorrect. Also, you may present evidence that an administrative wage garnishment would cause financial hardship if implemented. Lastly, if you were involuntarily terminated from your previous job and have been currently employed for less than 12 months, a wage garnishment cannot proceed. It’s advised to gather any documentation that supports your claims, as this information will be crucial for your defense.
You will need to file a brief with facts, evidence, and legal support for your position, as well as financials if you claim financial hardship. To that end, our assertive attorneys have represented clients all over the country in administrative wage garnishment hearings. Protect Law Group has the experience obtaining the necessary evidence and presenting your defenses. With the right legal representation, you can navigate this challenging situation more effectively and work toward a favorable resolution.
Contact our office today and one of our attorneys will discuss your matter with you at no cost.
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.
Clients obtained an SBA 7(a) loan for $324,000 to buy a small business and its facility. The business and real estate had an appraisal value of $318,000 at the time of purchase. The business ultimately failed but the participating lender abandoned the business equipment and real estate collateral even though it had valid security liens. As a result, the lender recouped nearly nothing from the pledged collateral, leaving the business owners liable for the deficiency balance. The SBA paid the lender the 7(a) guaranty money and was assigned ownership of the debt, including the right to collect. However, the clients never received the SBA Official 60-Day Notice and were denied the opportunity to negotiate an Offer in Compromise (OIC) or a Workout directly with the SBA before being transferred to Treasury's Bureau of Fiscal Service, which added an additional $80,000 in collection fees. Treasury garnished and offset the clients' wages, federal salary and social security benefits. When the clients tried to negotiate with Treasury by themselves, they were offered an unaffordable repayment plan which would have caused severe financial hardship. Clients subsequently hired the Firm to litigate an Appeals Petition before the SBA Office & Hearings Appeals (OHA) challenging the legal enforceability and amount of the debt. The Firm successfully negotiated a term OIC that was approved by the SBA Office of General Counsel, saving the clients approximately $205,000.
Client’s small business obtained an SBA 7(a) loan for $750,000. She and her husband signed personal guarantees exposing all of their non-exempt income and assets. With just 18 months left on the maturity date and payment on the remaining balance, the Great Recession of 2008 hit, which ultimately caused the business to fail and default on the loan terms. The 7(a) lender accelerated and sent a demand for full payment of the remaining loan balance. The SBA lender’s note allowed for a default interest rate of about 7% per year. In response to the lender's aggressive collection action, Client's husband filed for Chapter 7 bankruptcy in an attempt to protect against their personal assets. However, his bankruptcy discharge did not relieve the Client's personal guarantee liability for the SBA debt. The SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection against the Client to the SBA. The Client then received the SBA Official 60-Day Notice. After conducting a Case Evaluation with her, she then hired the Firm to respond and negotiate on her behalf with just 34 days left before the impending referral to Treasury. The Client wanted to dispute the SBA’s alleged debt balance as stated in the 60-Day Notice by claiming the 7(a) lender failed to liquidate business collateral in a commercially reasonable manner - which if done properly - proceeds would have paid back the entire debt balance. However, due to time constraints, waivers contained in the SBA loan instruments, including the fact the Client was not able to inspect the SBA's records for investigation purposes before the remaining deadline, Client agreed to submit a Structured Workout for the alleged balance in response to the Official 60-Day Notice as she was not eligible for an Offer in Compromise (OIC) because of equity in non-exempt income and assets. After back and forth negotiations, the SBA Loan Specialist approved the Workout proposal, reducing the Client's purported liability by nearly $142,142.27 in accrued interest, and statutory collection fees. Without the Firm's intervention and subsequent approval of the Workout proposal, the Client's debt amount (with accrued interest, Treasury's statutory collection fee and Treasury's interest based on the Current Value of Funds Rate (CVFR) would have been nearly $291,030.
Clients obtained an SBA 7(a) loan for their small business in the amount of $298,000. They pledged their primary residence and personal guarantees as direct collateral for the loan. The business failed, the lender was paid the 7(a) guaranty money and the debt was assigned to the SBA. Clients received the Official 60-Day Notice giving them a couple of options to resolve the debt balance directly with the SBA before referral to Treasury's Bureau of Fiscal Service. The risk of referral to Treasury would add nearly $95,000 to the SBA principal loan balance. With the default interest rate at 7.5%, the amount of money to pay toward interest was projected at $198,600. Clients hired the Firm with only 4 days left to respond to the 60-Day due process notice. Because the clients were not eligible for an Offer in Compromise (OIC) due to the significant equity in their home and the SBA lien encumbering it, the Firm Attorneys proposed a Structured Workout to resolve the SBA debt. After back and forth negotiations, the SBA Loan Specialist assigned to the case approved the Workout terms which prevented potential foreclosure of their home, but also saved the clients approximately $294,000 over the agreed-upon Workout term with a waiver of all contractual and statutory administrative fees, collection costs, penalties, and interest.
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