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.
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.
Clients executed several trust deeds pledging seven (7) real estate properties and unconditional personal guarantees for an SBA 7(a) loan from the participating lender. The clients' small business failed and eventually defaulted on repayment of the loan exposing all collateral pledged by the clients. The SBA subsequently acquired the loan balance from the lender, including the right to liquidate and collect all pledged collateral pursuant to the trust deed instruments.
The Firm was hired to negotiate separate release of lien proposals for all 7 real estate properties. In preparation for the work assignment, the Firm Attorneys initiated discovery to secure records from the SBA and Treasury's Bureau of Fiscal Service. After reviewing the records and understanding the interplay between the lender and the SBA, the attorneys then prepared, submitted and negotiated the release of lien (ROL) for each of the 7 real estate properties for consideration.
After submitting the proposals, the assigned SBA Loan Specialists approved each ROL package - significantly reducing the total SBA debt claimed.
The client personally guaranteed an SBA 7(a) loan for $150,000. His business revenue decreased significantly causing default and an accelerated balance of $143,000. The client received the SBA's Official 60-day notice with the debt scheduled for referral to the Treasury’s Bureau of Fiscal Service for aggressive collection in less than 26 days. We were hired to represent him, respond to the SBA's Official 60-day notice, and prevent enforced collection by the Treasury and the Department of Justice. We successfully negotiated a structured workout with an extended maturity date that included a reduction of the 14% interest rate and removal of substantial collection fees (30% of the loan balance), effectively saving the client over $242,000.
.jpg)
