DEPARTMENT OF JUSTICE: SAMPLE COMPLAINT AGAINST PERSONAL GUARANTORS FOR OUTSTANDING SBA DEBT
The transcript of the video follows below for further review.
31 C.F.R. Part 904 provides the reasons to refer SBA debt cases from Treasury Department’s Bureau of Fiscal Service to the U.S. Department of Justice for collection litigation.
Once an SBA loan default has occurred and the obligors (the small business borrower and/or the personal guarantor(s)) have not resolved the SBA debt within the 120-180 day time frame, federal regulations require the SBA to transfer the debt to the Treasury Department’s Bureau of Fiscal Service for placement in the Cross-Servicing and Treasury Offset Programs for administrative collection.
During this process, the Federal Government (SBA and/or Treasury) sends the SBA debtor a demand letter identifying the amount of the outstanding SBA loan and gives the debtor an opportunity to resolve the debt either through an Offer in Compromise or a Repayment Agreement. The SBA identifies the collection tools available for use in the event the SBA debtors fail to exercise their opportunity to an administrative review of the claimed SBA debt.
These collection tools are identified as follows:
1) Administrative Wage Garnishment (AWG)
2) Administrative Offset of Federal Salary
3) Administrative Offset of Federal Contactor/Vendor Payments
4) Administrative Offset of Federal Retirement (Pension)
5) Administrative Offset of Federal Benefits (Social Security)
6) Administrative Offset of Federal Tax Refund
7) Report SBA debt to Credit Bureaus
8) Report SBA debt to the IRS as Cancellation of Debt Income which may subject you to taxation
9) Refer SBA debt to a Private Collection Agency (PCA)
10) Place or Foreclose Lien on your Personal Residence
11) Refer SBA debt to U.S. Department of Justice for collection litigation
During the administrative collection phase of the SBA debt, Treasury may utilize one or more of the various collection tools to recover on the SBA debt.
The Government will periodically conduct a review of the performance of their recovery efforts. If the administrative collection tools are not yielding a sufficient amount of revenue, Treasury may flag an SBA debtor’s case for Department of Justice for litigation.
Once an SBA debt is referred to the Department of Justice for litigation, a Complaint will be filed against the responsible parties. Often times, this Complaint is filed against the personal guarantors of the SBA loan.
A Sample Complaint filed against personal guarantors by the U.S. Attorney’s Office has been reproduced below:
IN THE UNITED STATES DISTRICT COURT
UNITED STATES OF AMERICA,
SBA PERSONAL GUARANTORS,
Civil Action No.
NOW COMES, Plaintiff, the United States of America, by and through its counsel, the United States Attorney, hereby files this Complaint as a matter of course under Fed. R. Civ. P. 15(a)(1)(B) against SBA Personal Guarantors (hereinafter, “the Defendants”) under the Federal Debt Collection Procedures Act (“FDCPA”), 28 U.S.C. § 3001 et seq.
This Court has jurisdiction under 28 U.S.C. § 1345.
- Plaintiff, the United States, is a sovereign nation.
- The Defendants are residents of city, county and state, residing within the jurisdiction of this court.
III. FACTUAL ALLEGATIONS
None of the Defendants is in military service pursuant to the Soldiers’ and Sailors’ Civil Relief Act of 1940, as amended by the Service Members’ Civil Relief Act of 2003. On this date, the Defendants, acting as individuals, executed a promissory note to secure a SBA (“SBA”) loan for their business, a now defunct corporation, in the amount of $500,000.00 from the lender of record, pursuant to 15 U.S.C. § 636(a).
- On the same date, the Defendants executed unconditional guarantees in which they unconditionally guaranteed payment to the lender of record of all amounts owing under the promissory note.
- The loan proceeds were distributed to or on behalf of the Defendants or Defendants’ now defunct corporation.
- The Defendants defaulted on their obligation to repay the SBA loan on or about this date. Pursuant to 34 C.F.R. § 685.202(b), unpaid interest was capitalized and added to the principal balance.
- The Defendants are indebted to the United States in the principal amount of $500,000.00, plus interest in the amount of $61,053.17 and fees in the amount of $224,569.09, pursuant to 31 U.S.C. § 3717(e) and 37711(g)(6). The total indebtedness is therefore $785,622.26.
- A copy of the Certificate of Indebtedness establishing the basis for the Defendants’ liability for this debt and a copy of the Promissory Note signed by the Defendants is attached herein as See Exhibit 1.
- The Defendants have acknowledged the SBA loan debt multiple times. On the subject date, the Defendants acknowledged the SBA loan debt in written correspondence to a private collection agency that attempted to collect the debt. In describing their liabilities to a private collection agency (PCA) under federal contract with the Plaintiff, the Defendants listed the SBA loan debt as a liability of $785,622.26. See Exhibit 2 at 6.
- In a consumer debtor financial statement that the Defendants prepared for a private collection agency under federal contract with Plaintiff and signed on the subject date, the Defendants again listed the SBA loan debt of an “estimated $785,622” under the category of “other liabilities.” See Exhibit 3 at 7.
- In another consumer debtor financial statement executed on the subject date, Mr. Defendant, acting as president of the now defunct corporation, listed the SBA loan debt of “approximately $785,622” under the category of “other liabilities.” See Exhibit 4 at 2.
- The Treasury Offset Program applied multiple payments toward the Defendants’ debt on behalf of Defendant from the subject dates, and on behalf of both Defendants on the subject date.
- In addition, on the subject date, the Defendants, through counsel, sent a letter to the U.S. Attorney’s Office in which they again acknowledged the debt. See Exhibit 5.
- The United States has made a demand to the Defendants for the amount owed, but the amount due remains unpaid.
COUNT I – CLAIM FOR A DEBT
- The United States incorporates by reference the allegations set forth above paragraphs 1-15.
- The amounts set forth in the aforesaid paragraphs are a “debt” to the United States as defined by the FDCPA. 28 U.S.C. § 3002(3)(B).
- The United States is entitled to obtain a remedy regarding the Defendants’ debt to the United States pursuant to 28 U.S.C. § 3001(a)(2).
WHEREFORE, PREMISES CONSIDERED, the United States respectfully prays:
- To recover from the Defendants, principal amount of $500,000.00, plus interest in the amount of $61,053.17 and fees in the amount of $224,569.09, totaling $785,622.26.
- That the Court award the United States costs for prosecuting this action, including but not limited to, a filing fee of $400.00, as authorized by 28 U.S.C § 2412(a)(2);
- That the Court award the United States a surcharge of 10 percent of the amount of the debt in connection with the recovery of the same to cover the cost of processing and handling the litigation and enforcement under the FDCPA, 28 U.S.C. § 3011(a); and
- That the Court grant such further and general relief as the Court deems just and proper under the law and the facts of this case.
United States Attorney
s/ Assistant U.S. Attorney
Assistant United States Attorney
United States Attorney’s Office
s/ Special Assistant U.S. Attorney
Special Assistant United States Attorney
United States Attorney’s Office
Therefore, it is best to settle your SBA debt before the U.S. Department of Justice files a lawsuit against you. Once a lawsuit is filed, the chances for a successful resolution evaporates rapidly.
If you are facing an SBA loan default, contact us today for a FREE initial consultation with an experienced SBA workout attorney at 888-756-9969.
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