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Often times, SBA debtors who have signed personal guarantees associated with an SBA Loan Agreement think that simply filing for Chapter 7 Bankruptcy is the proverbial “golden ticket” to fix the SBA loan problems and get out of personal liability with an SBA loan default. However, just because an SBA debtor files for Chapter 7 Bankruptcy versus an SBA Offer in Compromise, does not mean that the debtor is “out of the woods.”
Banks and lenders try to find ways to create or maintain superior leverage even though an SBA debtor threatens to file for bankruptcy protection after an SBA loan default. However, the story does not end with a mere electronic or paper filing. Lenders and their attorneys do scrutinize the Chapter 7 petition pre-filing actions of SBA debtors to discover if distressed SBA debtors have improperly disposed of collateral, transferred property or other reachable assets through "quitclaim" or other suspicious "gift" transactions to family, friends or other third parties to keep them from their reaches.
Chapter 7 bankruptcy debtors, in their filings, are required to disclose to the United States Trustee all of their assets, liabilities, income, and any anticipated increase in income. Any intentional failure to do so, can not only expose the SBA debtors to the adversarial complaint process and disqualify their discharge of certain debts, but can also also initiate possible referrals to the United States Department of Justice for criminal fraud and may even result in a filing of federal indictment with multiple counts of bankruptcy fraud for concealing and knowingly making false oaths and declarations.
Additionally, SBA debtors may have made misrepresentations in the origination of the SBA loan and during the servicing and work out stages with the Lender or SBA in their financial statements and written submissions to them. Lenders review these materials as part of their due diligence to protect their rights to collect on the SBA Guaranty and mitigate further damage to its and the SBA's recovery efforts.
In such instances, there may also be grounds by the Lenders (and even the SBA) to object to a Chapter 7 bankruptcy discharge or otherwise contest the bankruptcy in its entirety when borrowers or SBA loan guarantors engage in any such malfeasance. In these cases, adversarial proceedings in bankruptcy can be the forum through which lenders can resolve any guaranty affecting deficiencies contained within their files.
Dealing with the idea that you might be facing SBA loan default can be terrifying. The SBA attorneys in our office are skilled at helping clients understand all facets of their situations. If, for instance, you need to know what an SBA offer in compromise is, you can simply ask your lawyer. You should never face SBA loan problems alone. It is important to retain the services of an attorney who can help you through this difficult time in your life. We urge you to read about the services that we have available and to contact us if you believe that we can be of assistance to you right now.
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.
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.
Client's small business obtained an SBA COVID EIDL for $301,000 pledging collateral by executing the Note, Unconditional Guarantee and Security Agreement. The business defaulted on the loan and the SBA CESC called the Note and Guarantee, accelerated the principal balance due, accrued interest and retracted the 30-year term schedule.
The loan was transferred to the Treasury's Bureau of Fiscal Service which resulted in the statutory addition of $90,000+ in administrative fees, costs, penalties and interest with the total debt now at $391.000+. Treasury also initiated a Treasury Offset Program (TOP) levy against the client's federal contractor payments for the full amount each month - intercepting all of its revenue and pushing the business to the brink of bankruptcy.
The Firm was hired to investigate and find an alternate solution to the bankruptcy option. After submitting formal production requests for all government records, it was discovered that the SBA failed to send the required Official 60-Day Pre-Referral Notice to the borrower and guarantor prior to referring the debt to Treasury. This procedural due process violation served as the basis to submit a Cross-Servicing Dispute to recall the debt from Treasury back to the SBA and to negotiate a reinstatement of the original 30-year maturity date, a modified workout, cessation of the TOP levy against the federal contractor payments and removal of the $90,000+ Treasury-based collection fees, interest and penalties.
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.
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