SBA OIC: Deferment v. Liquidation
Dealing with an SBA OIC case can be hard, this is why you should allow one of our lawyers to settle your SBA debt. Talk to us about your SBA loan default.
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Book a Consultation CallPursuant to 31 U.S.C. §§ 3711(g)(1)(B), 3711(g)(4), and 3711(g)(5), and the authority delegated to the Treasury Department’s Bureau of Fiscal Service (BFS) by the U.S. Department of Justice, BFS is authorized to take appropriate action to collect or compromise transferred debts.
With regard to debts that have been transferred to BFS for debt collection services, BFS has the same authority available to the head of the federal creditor agency to compromise transferred debts or collect transferred debts in installments.
In addition, the Department of Justice has delegated to BFS the authority to compromise debts with a principal balance of up to $500,000. BFS may accept proposed compromises of debts with a principal balance of over $500,000 only with the approval of the Department of Justice.
BFS may collect and/or compromise debts in accordance with applicable Federal law, including the Federal Claims Collection Standards (31 CFR Parts 900-904). Prior to transferring debts, the federal creditor agency must provide to BFS a detailed description of any agency or debt-specific laws, policies, and procedures that govern the compromise and/or collection of its debts. Therefore, any federal creditor agency debts, including SBA debts, that have been transferred to BFS, are eligible for compromise by the Treasury’s BFS, in accordance with applicable federal law and supporting regulations.
A BFS offer in compromise (OIC) is a written settlement agreement with the BFS for less than the full amount owed. Generally, it is based on the argument that you do not have the financial ability to pay back the federal creditor agency debt (along with the administrative fees) in full within a reasonable amount of time.
The BFS are required to use the same formula that the original federal creditor agency (such as the SBA) to determine an acceptable settlement amount. A cash offer in compromise can be made. Short term and longer term deferred repayment plans are also available if you are unable to pay the settlement amount in full.
You may qualify for an OIC and not know it. Treasury’s BFS employees generally will not tell you that you qualify or that a compromise offer proposal is even available for consideration. Or, a seemingly friendly BFS official may offer to “help” you prepare and process your own OIC only to discover the whereabouts of your remaining personal assets. Then, the BFS will use its own formula against you, reject your OIC and demand payment in full or simply seize your recently discovered assets through various collection tools, such as Administrative Wage Garnishment, Treasury Offset Program levy, or referral to the Department of Justice or Private Litigation Counsel for collection litigation in federal or state court.
Thus, it is important to find out if a BFS OIC is even an option as this may be the only vehicle that can possibly save you a lot of money. If you qualify, we prepare your OIC and aggressively advocate your interests with the BFS until a final decision is reached.
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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.
The client personally guaranteed an SBA 504 loan balance of $375,000. Debt had been cross-referred to the Treasury at the time we got involved with the case. We successfully had debt recalled to the SBA where we then presented an SBA OIC that was accepted for $58,000.
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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