Learn about different bankruptcy options for small business owners. Contact Protect Law Group serving San Diego, Orange, and Los Angeles Counties.
Book a Consultation CallFor small business owners facing overwhelming debt burdens, bankruptcy can be a viable option for gaining financial relief and a fresh start. However, when it comes to dealing with Small Business Administration (SBA) debt, understanding the bankruptcy options available is crucial. In this blog post, Protect Law Group will explore the various bankruptcy options specifically tailored for small business owners with SBA debts.
Chapter 7 bankruptcy, also known as liquidation bankruptcy, is a common option for small business owners looking to eliminate their SBA debts. Through this process, the business's assets are liquidated, and the proceeds will be used to pay off creditors, including the SBA. Once the debts are discharged, the business owner can start anew without the burden of SBA obligations.
For small business owners who wish to continue operating their businesses while seeking debt relief, Chapter 11 bankruptcy may be the right option. This type of bankruptcy allows for the restructuring of debts, including SBA loans, by developing a repayment plan that is manageable for the business. The plan typically extends the repayment period and may involve negotiating reduced interest rates or lower monthly payments.
In some cases, small business owners may be able to negotiate loan workouts or settlements directly with the SBA. This involves discussing revised repayment terms or exploring the possibility of settling the debt for a reduced amount. Working with an experienced bankruptcy attorney during these negotiations can greatly increase the chances of securing favorable terms.
The SBA offers an option called an Offer in Compromise (OIC), which allows small business owners to settle their SBA debts for less than the amount owed. This option is typically available if the business demonstrates an inability to repay the debt in full and can provide supporting financial documentation. While an OIC can be a viable solution, it's important to note that the decision lies with the SBA.
For small business owners struggling with SBA debts, exploring bankruptcy options can provide a path to financial recovery. Book a consultation call with one of Protect Law Group’s SBA loan attorneys serving San Diego, Orange, and Los Angeles Counties today!
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 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.
Our firm successfully negotiated an SBA offer in compromise (SBA OIC), settling a $974,535.93 SBA loan balance for just $18,000. The offerors, personal guarantors on an SBA 7(a) loan, originally obtained financing to purchase a commercial building in Lancaster, California.
The borrower filed for bankruptcy, and the third-party lender (TPL) foreclosed on the property. Despite the loan default, the SBA pursued the offerors for repayment. Given their limited income, lack of significant assets, and approaching retirement, we presented a strong case demonstrating their financial hardship.
Through strategic negotiations, we secured a favorable SBA settlement, reducing the nearly $1 million debt to a fraction of the amount owed. This outcome allowed the offerors to resolve their liability without prolonged financial strain.
Clients executed personal and corporate guarantees for an SBA 7(a) loan from a Preferred Lender Provider (PLP). The borrower corporation defaulted on the loan exposing all collateral pledged by the Clients. The SBA subsequently acquired the loan balance from the PLP, including the right to collect against all guarantors. The SBA sent the Official Pre-Referral Notice to the guarantors giving them sixty (60) days to either pay the outstanding balance in full, negotiate a Repayment (Offer in Compromise (OIC) or Structured Workout (SW)), challenge their alleged guarantor liability or file a Request for Hearing (Appeals Petition) with the SBA Office of Hearings & Appeals.
Because the Clients were not financially eligible for an OIC, they opted for Structured Workout negotiations directly with the SBA before the debt was transferred to the Bureau of Fiscal Service, a division of the U.S. Department of Treasury for enforced collection.
The Firm was hired to negotiate a global Workout Agreement directly with the SBA to resolve the personal and corporate guarantees. After submitting the Structured Workout proposal, the assigned SBA Loan Specialist approved the requested terms in under ten (10) days without any lengthy back and forth negotiations.
The favorable terms of the Workout included an extended maturity at an affordable principal amount, along with a significantly reduced interest rate saving the Clients approximately $181,000 in administrative fees, penalties and interest (contract interest rate and Current Value of Funds Rate (CVFR)) as authorized by 31 U.S.C. § 3717(e) had the SBA loan been transferred to BFS.
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