Posts on Government Loan Defaults

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.

SBA FAQS

Is there a creditor committee in a Subchapter V?

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 An SBA Loan?

An SBA loan is a small business loan made by a private sector lender (such as a local bank or other lender) which is guaranteed by the United States Small Business Administration (“SBA”) pursuant to the terms of the U.S. Small Business Act, as amended (“Act”).

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

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.

I received a letter from the SBA stating that I have only 60 days from the date of the letter to submit an SBA Offer in Compromise before the case is referred to the Department of the Treasury. What does this mean?

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.

$750,000 SBA 7A LOAN – NEGOTIATED WORKOUT AGREEMENT

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.

$140,000 SBA 7(a) LOAN – PERSONAL GUARANTY LIABILITY | NEGOTIATED 50% SETTLEMENT

Our firm successfully resolved an SBA 7(a) loan default in the amount of $140,000 on behalf of a husband-and-wife guarantor pair. The business had closed following a prolonged decline in revenue, leaving the borrowers personally liable for the remaining balance.

After conducting a comprehensive financial analysis and preparing a detailed SBA Offer in Compromise (SBA OIC) package, we negotiated directly with the SBA and the lender to achieve a settlement for $70,000 — just 50% of the outstanding balance. This settlement released the borrowers from further personal liability and allowed them to move forward without the threat of enforced collection.

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$1,500,000 SBA COVID-EIDL LOAN - SBA OHA LITIGATION

Small business and guarantors obtained an SBA COVID-EIDL loan for $1,000,000. Clients defaulted causing SBA to charge-off the loan, accelerate the balance and refer the debt to Treasury's Bureau of Fiscal Service for collection. Treasury added nearly $500,000 in collection fees totaling $1,500,000. Clients were served with the SBA's Official 60-Day Notice and exercised the Repayment option by applying for the SBA’s Hardship Accommodation Plan. However, their application was summarily rejected by the SBA without providing any meaningful reasons. Clients hired the Firm to represent them against the SBA, Treasury and a Private Collection Agency. After securing government records through discovery, we filed an Appeals Petition with the SBA Office of Hearings & Appeals (OHA) court challenging the SBA's referral of the debt to Treasury. During litigation and before the OHA court issued a final Decision and Order, the Firm successfully negotiated a reinstatement and recall of the loan back to the SBA, a modification of the original repayment terms, termination of Treasury's enforced collection and removal of the statutory collection fees.