Defaulting on a COVID EIDL loan can seriously affect your credit and trigger federal collection actions like the Treasury Offset Program. Learn what happens and how to protect yourself.
Book a Consultation CallThe Economic Injury Disaster Loan (EIDL) program offered essential support to businesses during the COVID-19 pandemic. However, as repayment obligations set in, many borrowers now face the harsh consequences of defaulting on these federal loans. Understanding how EIDL loan defaults impact credit and trigger federal collection efforts is essential for protecting your financial and legal well-being.
An EIDL loan default occurs when a borrower fails to meet their repayment obligations under the loan agreement. This may happen due to business closure, cash flow shortages, or misunderstandings about repayment timelines.
Once in default, the SBA initiates a multi-step collection process that can have long-lasting financial consequences.
While EIDL loans are federal debts, they can still indirectly affect your credit in the following ways:
The Department of the Treasury possesses robust enforcement tools under the Debt Collection Improvement Act of 1996. These include:
These tools can be applied aggressively and often without a traditional court process, making it vital for borrowers to understand their rights and respond promptly.
If you're facing EIDL loan collection actions, here are key steps to take:
An EIDL loan default can lead to serious financial and legal consequences, from damaged credit to enforced federal collection actions. Understanding how the Treasury Offset Program works and taking timely legal action can make a critical difference in protecting your business and personal finances.
If you've received a notice related to your defaulted EIDL loan or are facing wage garnishment or tax refund interception, contact Protect Law Group today. Our experienced SBA loan attorneys can help assess your case, negotiate with federal agencies, and guide you toward the best possible outcome.
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.
Client personally guaranteed SBA 7(a) loan balance of over $150,000. Business failed and eventually shut down. SBA then pursued client for the balance. We intervened and was able to present an SBA OIC that was accepted for $30,000.
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.
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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