Chapter 11 Subchapter V Bankruptcy: Explained in Plain English
Chapter 11 Subchapter V has redefined the process of small business bankruptcies. Learn what's changed (and how Protect Law Group can help) in this guide.
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Book a Consultation CallCross-Servicing is a consolidated government-wide program operated by Treasury's Bureau of Fiscal Service (BFS) that fulfills the requirement of The Debt Collection Improvement Act of 1996 (DCIA) to collect delinquent, non-tax debt on behalf of federal agencies. As required by the DCIA, an agency must refer any eligible debt more than 180 days delinquent to Fiscal Service for cross-servicing.
As part of the Cross-Servicing program, BFS must take appropriate action to service, collect, compromise, or suspend or terminate collection action on the debt. BFS encourages federal creditor agencies (agencies to whom debt is owed) to transfer all eligible delinquent debts for debt collection services before they are delinquent 180 days. Agencies are strongly encouraged to use all available debt collection tools.
The DATA Act changed the notice requirement for federal agencies to notify the Treasury Secretary of past due, nontax debts for the purposes of administrative offset from 180 days to 120 days.
In order to transfer a federal agency debt (such as a defaulted SBA loan) to BFS, the parties must execute and comply with the applicable Annual Debt Certification Agreement between the federal agencies.
The Cross-Servicing Dispute presents an avenue to release your debt from the clutches of the Treasury Department’s blackhole and back to the SBA or originating federal agency. In most cases, it is necessary to return the debt to the SBA or other originating federal agency given the Treasury’s extreme reluctance to compromise debts referred to it.
The Cross-Servicing Dispute must present facts, evidence and legal arguments establishing that your debt should have never been transferred to the Treasury. If successful, this strategy accomplishes two (2) goals: 1. It can eliminate the 28% to 30% “collection fee” that Treasury adds to your debt; and 2. It can transfer the debt back to the SBA or other originating agency, which potentially means a more realistic offer in compromise.
In order for the SBA or other federal agency to transfer your debt to the Department of Treasury, an employee of the SBA must certify, in writing, that the debt being transferred is valid, legally enforceable, and that there are no legal bars to collection. Creditor agencies, such as the SBA, must also certify that they have complied with all prerequisites to a particular collection action under the laws, regulations or policies applicable to the agency unless the creditor agency has requested, and the Department of Treasury has agreed, to do so on the creditor agency's behalf.
Thus, it is important to obtain a copy of the applicable Annual Debt Certification Agreement, as the provisions contained in this Agreement, often form the basis upon which to file or submit a formal petition for a Cross-Servicing Dispute. Generally, you would want to investigate whether you can challenge the cross-servicing of the debt from the federal creditor agency to the Treasury Department’s BFS. Some of these challenges could be based on arguments and evidence that the debt is not valid or legally enforceable, that your due process rights were violated and/or that the administrative fees, interest and/or penalties are inequitable.
You can view a Cross-Servicing Dispute Form by clicking: CSD Form
The Cross-Servicing Dispute is not as simple as asking Treasury to return the debt. We do not recommend that you simply try disputing your debt by yourself. Instead, it would be better if you hire us to investigate the grounds for a possible cross-servicing dispute, and where applicable, formally prepare a Petition for Cross-Servicing Dispute on your behalf and process your case through the federal agency’s administrative appeals channels. You need an experienced attorney to gather and analyze documents, evidence and apply legal arguments. Our aggressive attorneys know what evidence and facts to look for and how to apply legal theories to support your Cross-Servicing Dispute.
Contact us today for a Case Evaluation.
Clients personally guaranteed an SBA 7(a) loan balance of $65,000 for their Texas-based business. The SBA loan was paid down to $41,000 before the business failed. The loan was referred to Treasury's Bureau of Fiscal Service. Treasury assessed its collection fees increasing the debt to $66,000. The client received a Notice of Intent to Initiate Administrative Wage Garnishment (AWG) Proceedings. The Firm represented the client at the hearing and successfully challenged the legal enforceability of the debt. Based on our legal arguments, the Hearing Officer issued a Decision and Order terminating collection of the $66,000 debt by operation of law.
Our firm successfully resolved an SBA 7(a) loan default in the amount of $212,000 on behalf of an individual guarantor. The borrower’s business experienced a significant downturn in revenue and was unable to sustain operations, ultimately leading to closure and a remaining personal guaranty obligation.
After conducting a thorough financial review and preparing a comprehensive SBA Offer in Compromise (SBA OIC) submission, we negotiated directly with the SBA and lender to achieve a settlement of $50,000—approximately 24% of the outstanding balance. This favorable resolution released the guarantor from further personal liability and provided the opportunity to move forward free from the burden of enforced collection.
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.
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