Learn about the wage garnishment limits for defaulted SBA loans, including how much of your paycheck can be taken, and explore legal protections and repayment options.
Book a Consultation CallIf you've defaulted on an SBA (Small Business Administration) loan, it’s important to understand the potential financial consequences, including wage garnishment. Wage garnishment can be a serious burden, affecting your paycheck and financial stability. This article provides a breakdown of how much of your paycheck can be garnished if you default on an SBA loan, along with the legal limits imposed by federal law.
Wage garnishment occurs when a creditor, in this case the SBA, obtains an order to deduct a portion of your earnings directly from your paycheck to settle an outstanding debt. In the case of a defaulted SBA loan, the federal government or the lending institution that backed the loan can seek wage garnishment to recover the debt.
For more details on how wage garnishment works, you can visit the U.S. Department of Labor’s overview.
SBA loans are backed by the federal government or made directly by the SBA, and if your loan was issued by the SBA or guaranteed by the SBA, you may be subject to an administrative wage garnishment. Specifically, administrative wage garnishment (AWG) allows federal agencies to garnish wages without needing a court order. Here are the key details:
• 15% Limit for Federal Loans: Under the Debt Collection Improvement Act, federal agencies can garnish up to 15% of your disposable income to recover delinquent federal debts, including SBA loans backed by the U.S. government.
• No Court Order Required: Unlike garnishment pursued by private creditors, federal agencies can implement wage garnishment without obtaining a court order through a process called administrative wage garnishment. However, the borrower must be given notice and the opportunity to challenge the garnishment before it begins.
For more information on administrative wage garnishment, check out the U.S. Department of the Treasury.
To provide a clearer picture, let’s consider a hypothetical scenario for wage garnishment due to a defaulted SBA loan.
• Scenario: You earn $1,000 per week in disposable income after taxes and other withholdings.
• Private Lender (25% Rule): If the SBA loan was issued by a private lender, they can garnish up to 25% of your disposable income. In this case, that would amount to $250 per week.
• Federal Loan (15% Rule): If the SBA loan was issued by the SBA or guaranteed by the SBA, they can garnish up to 15% of your disposable income. That would amount to $150 per week.
You are entitled to a hearing and the right to provide evidence in your defense or that an AWG would cause a financial hardship. If you submit your hearing request timely, the AWG cannot start until a hearing is conducted and the decision does not go in your favor.
If you’re facing wage garnishment for a defaulted SBA loan, there are steps you can take to protect your income and explore repayment options:
1. Negotiate a Repayment Plan: Contact the creditor or the SBA to discuss setting up a repayment plan that works within your budget. Lenders may be willing to work with you to avoid garnishment.
2. Seek Legal Counsel: Consult with a qualified attorney who specializes in debt relief or SBA loans. An attorney can review your case and may be able to help you reduce or stop the garnishment.
3. Request a Hearing: If you believe the garnishment amount is too high or you dispute the debt, you can request a hearing to challenge the garnishment order.
4. Bankruptcy Consideration: While it should be a last resort, filing for bankruptcy can halt wage garnishment and provide time to restructure or discharge your debts.
Wage garnishment can severely impact your financial well-being, especially if you're already struggling with a defaulted SBA loan. If you’re concerned about garnishment or facing ongoing wage deductions, it's vital to seek legal assistance. Contact Protect Law Group to schedule a consultation with one of our experienced SBA loan attorneys. We can help you explore your options and create a plan to protect your income and resolve your debt.
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.
Small business sole proprietor obtained an SBA COVID-EIDL loan for $500,000. Client defaulted causing SBA to charge-off the loan, accelerate the balance and refer the debt to Treasury's Bureau of Fiscal Service for aggressive collection. Treasury added $180,000 in collection fees totaling $680,000+. Client tried to negotiate with Treasury but was only offered a 3-year or 10-year repayment plan. Client hired the Firm to represent before the SBA, Treasury and a Private Collection Agency. After securing government records through discovery and reviewing them, we filed an Appeals Petition with the SBA Office of Hearings & Appeals (OHA) court challenging the SBA's referral of the debt to Treasury citing a host of purported violations. The Firm was able to negotiate a reinstatement and recall of the loan back to the SBA, participation in the Hardship Accommodation Plan, termination of Treasury's enforced collection and removal of the statutory collection fees.
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.
Clients personally guaranteed an SBA 7(a) loan that was referred to the Department of Treasury for collection. Treasury claimed our clients owed over $220,000 once it added its statutory collection fees and interest. We were able to negotiate a significant reduction of the total claimed amount from $220,000 to $119,000, saving the clients over $100,000 by arguing for a waiver of the statutory 28%-30% administrative fees and costs.
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