SBA Loan Default: What Happens if You Don't Pay?
Did you default on an SBA loan? We're telling you what happens if you don't pay and what you can do with an SBA loan default.
Below are excerpts from the United States Attorneys' Manual relating to several key policy treatment by the Department of Justice lawyers with respect to non-tax federal debts, such as SBA debts.
Key provisions that SBA debtors should, at the very least, familiarize themselves with are noted below:
Commencing on October 1, 1990, all federal agencies are required to refer claims when the principle amount is $1,000,000 or less for litigation or debt enforcement to the Department of Justice through the Nationwide Central Intake Facility. The Nationwide Central Intake Facility acknowledges receipt of the claim, provides a limited review of the Claims Collection Litigation Report (CCLR) for compliance with the Federal Claims Collection Standards, and forwards the information to the appropriate United States Attorney's office for litigation. Federal agencies are not required to send the following types of cases to the Nationwide Central Intake Facility: anti-trust cases; environment and natural resources cases; tax cases; fraud cases; interagency claims; renewal of judgment lien only cases; and if the agency is seeking Department of Justice concurrence on an agency's proposal to suspend or terminate action to collect a claim.In cases where time is of the essence in securing the government's position, the agency may send a referral directly to the United States Attorney's office with a copy of the CCLR to the Nationwide Central Intake Facility. If the Financial Litigation Unit receives a referral package directly from an agency, or they are requested to enforce a civil judgment from another division within the United States Attorney's office that has not been previously docketed by the Nationwide Central Intake Facility, Financial Litigation Unit personnel shall provide data on the referral by completing and mailing the "Nationwide Case Initiation Sheet" to the Nationwide Central Intake Facility.
see link: https://www.justice.gov/usao/eousa/foia_reading_room/usam/title3/10musa.htm#3-10.120
The Federal Claims Collection Standards (4 C.F.R. Parts 101 to 105) prescribe regulations which agencies must follow to collect, compromise and suspend or terminate collection action on their claims. Agencies are required to provide certain information to the Department of Justice when referring claims for litigation and enforced collection. See 4 C.F.R. § 105.1 et seq. The Financial Litigation Staff, with the support and cooperation of the General Accounting Office, developed the Claims Collection Litigation Report (CCLR) as the standard report to convey this information.Unless an exception has been granted by the Financial Litigation Staff, agencies are required to provide a completed CCLR with each claim they refer. See 4 C.F.R. §105.2. United States Attorneys' offices are responsible for ensuring that CCLRs comply with the requirements set forth in Federal Claims Collection Standards. These requirements should be addressed with local agency representatives when claims are referred without the CCLR, or when the CCLRs provided are inadequate. The Deputy Director, Legal Programs, should be advised of any problems which cannot be resolved or continue to persist at the local level.Some information requested on the CCLR may be superfluous to a particular agency's claim or impossible for the agency to obtain. The agency's inability to obtain all information required on the CCLR should not be viewed as a bar to the referral of a claim for litigation. However, information requested on the CCLR should be provided to the extent feasible and any omissions by the agency should be noted throughout the CCLR.The Federal Claims Collection Standards also provide that once a claim has been referred to the Department of Justice, the referring agency shall refrain from having any contact with the debtor and shall direct the debtor to the United States Attorney on any matters concerning the claim. The Standards further provide that the United States Attorney shall be immediately notified by the referring agency of any payments which are received from the debtor subsequent to referral of a claim. See 4 C.F.R. §105.1(d).
see link: https://www.justice.gov/usao/eousa/foia_reading_room/usam/title3/10musa.htm#3-10.130
A compromise is an agreement to accept less than the total amount owing in principal interest, and administrative costs in civil cases. Criminal cases (with the exception of bail bond forfeitures) cannot be compromised. Compromises are accepted only when it is not in the best interest of the government to pursue the full amount of the debt. Pursuant to Title 4, Code of Federal Regulations (C.F.R.), Section 103.2, the factors to consider include: (1) the debtor's inability to pay the full amount within a reasonable time; or (2) the refusal of the debtor to pay the claim in full and the government's inability to enforce collection in full within a reasonable time by enforced collection proceedings.Pursuant to 28 C.F.R., Part O, Subpart Y, Civil Division Directive 14-95, compromises must be approved by a supervisory Assistant United States Attorneys.A claim or judgment should only be compromised with agency approval. Whenever a claim is compromised, the full compromised debt should be collected in a lump sum. Any agreement to accept several payments must provide for payment of the full compromise amount within 90 days. If several payments are agreed to with full payment within 90 days, the government's claim must be secured by the entry of a judgment.Following payment of a compromised amount, the Financial Litigation Unit shall promptly send the client agency a notice of compromise and a closing letter. The letter will document for the agency the reason(s) why the claim was compromised and inform it of the total amount recovered.
see link: https://www.justice.gov/usao/eousa/foia_reading_room/usam/title3/10musa.htm#3-10.180
An installment payment plan shall be established only when the debtor is unable to make payment in full, or to obtain suitable financing from a private institution in order to make payment in full. Establishment of an installment payment plan shall not be considered unless and until a financial statement has been fully completed and signed by the debtor. Under no circumstances shall an installment payment plan be agreed to, or the terms and conditions of any plan be discussed, with the debtor prior to receiving a financial statement. All financial information provided must first be reviewed by Financial Litigation Unit personnel to determine whether a payment plan would be appropriate and, if so, to ensure that the maximum monthly payment amount is obtained and the judgment is liquidated at the earliest possible date.
see link: https://www.justice.gov/usao/eousa/foia_reading_room/usam/title3/10musa.htm#3-10.300
If you are struggling with circumstances that involve SBA loan default, you deserve professional representation! Our attorneys all know how to handle SBA OIC and DOT compromise cases. If you contact us, we can help you settle SBA debt or DOT debt once and for all. After you schedule an appointment, you consult with a dedicated SBA OIC lawyer or United States Treasury Dept Practitioner who can help you through your administrative legal battle. Once your claim is resolved, you won't have to worry about your SBA loan default or DOT debt problem haunting you. Our team of battle-tested SBA workout attorneys and DOT practitioners has assisted many federal debtors throughout the years. Now it is your turn! You truly can settle SBA debt or DOT debt for good!
Contact us at 888-756-9969 or simply enter your information on your online Contact Form and arrange for a Case Evaluation with one of our SBA Workout Attorneys or DOT Practitioners.
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 personally guaranteed SBA 504 loan balance of $750,000. Clients also pledged the business’s equipment/inventory and their home as additional collateral. Clients had agreed to a voluntary sale of their home to pay down the balance. We intervened and rejected the proposed home sale. Instead, we negotiated an acceptable term repayment agreement and release of lien on the home.
Client’s small business obtained an SBA 7(a) loan for $150,000. He and his wife signed personal guarantees and pledged their home as collateral. The SBA loan went into default, the term or maturity date was accelerated and demand for payment of the entire amount claimed was made. The SBA lender’s note gave it the right to adjust the default interest rate from 7.25% to 18% per annum. The business filed for Chapter 11 bankruptcy but was dismissed after 3 years due to its inability to continue with payments under the plan. Clients wanted to file for Chapter 7 bankruptcy, which would have been a mistake as their home had significant equity to repay the SBA loan balance in full as the Trustee would likely seize and sell the home to repay the secured and unsecured creditors. However, the SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection to the SBA. Clients then received the SBA Official 60-Day Notice and hired the Firm to respond to it and negotiate on their behalf. Clients disputed the SBA’s alleged balance of $148,000, as several payments made to the SBA lender during the Chapter 11 reorganization were not accounted for. To challenge the SBA’s claimed debt balance, the Firm Attorneys initiated expedited discovery to obtain government records. SBA records disclosed the true amount owed was about $97,000. Moreover, because the Clients’ home had significant equity, they were not eligible for an Offer in Compromise or an immediate Release of Lien for Consideration, despite being incorrectly advised by non-attorney consulting companies that they were. Instead, our Firm Attorneys recommended a Workout of $97,000 spread over a lengthy term and a waiver of the applicable interest rate making the monthly payment affordable. After back and forth negotiations, SBA approved the Workout proposal, thereby saving the home from imminent foreclosure and reducing the Clients' liability by nearly $81,000 in incorrect principal balance, accrued interest, and statutory collection fees.
Clients' 7(a) loan was referred to Treasury's Bureau of Fiscal Service for enforced collection in 2015. They not only personally guaranteed the loan, but also pledged their primary residence as additional collateral. One of the clients filed for Chapter 7 bankruptcy thinking that it would discharge the SBA 7(a) lien encumbering their home. They later discovered that they were mistakenly advised. The Firm was subsequently hired to review their case and defend against a series of collection actions. Eventually, we were able to negotiate a structured workout for $180,000 directly with the SBA, saving them approximately $250,000 (by reducing the default interest rate and removing Treasury's substantial collection fees) and from possible foreclosure.
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