Small Business Bankruptcy: A Guide to Chapter 11, Subchapter 5
Chapter 11, Subchapter 5 went into effect in February. Discover what the new law means for you, and how it affects small business bankruptcy.
Your small business has failed ... The loan has been in default for years … The business has shut down … all business property, equipment, inventory and/or commercial real estate has been been liquidated, foreclosed or repossessed.
The originating lender has opted not to file a lawsuit against you on your personal guarantees. You think that everything is over … however, several years later, you receive a Notice from the SBA claiming you owe them a ton of money and need to contact them within 60 days of this Notice or you get a Collection Letter from the Treasury Department’s Bureau of Fiscal Service claiming that you owe the SBA an old debt and if you don’t contact them with arrangements for repayment, they will add up to 30% of the original balance to the SBA debt. What do you do?
First, if you received the Official 60-Day Notice from the SBA, do NOT ignore it (click here to view a Sample Official 60-Day Notice). There can be severe consequences if you do. The 60-Day Notice gives you a one-time opportunity to resolve your SBA debt either through an Offer in Compromise (where you pay a lesser amount based on unique factors pertinent to your case) or a Repayment Agreement (an agreed-upon installment pay-back plan, preferably for a lesser amount owed) with the SBA.
Second, if you received a Collection Letter from Treasury, do NOT ignore it (click here to view a Sample Collection Letter). However, you should not attempt to contact Treasury by yourself to try and resolve the debt as you do not want to acknowledge you owe the debt as alleged or provide them with any financial information because you could hurt your own negotiating position. Once your SBA debt has been transferred from the SBA to the Treasury Department’s Bureau of Fiscal Service, you may receive a series of collection letters and phone calls demanding that you contact Treasury.
Treasury’s collection agents say that they will only entertain settlement offers at a 20% discount if you pay the total amount (principal SBA debt balance plus up to 30% in accrued interest, penalties and administrative costs) if you pay them within 30 days. For example, if your alleged SBA debt is $200,000 and the accrued interest, penalties and costs is $60,000, totaling $260,000, Treasury’s collection agents will tell you they’ll settle your debt for $208,000 (80% of total SBA debt claimed with accruals). But, you must pay the $208,000 within 30 days of accepting Treasury's offer. Or, you can agree to their repayment agreement where you will have to pay $7,222 a month for the next 36 months (3 year term). For most folks, these settlement offers are virtually impossible to accept. If, however, you don’t accept their harsh offers, Treasury will then engage in enforced collection and use a series of administrative collection tools, such as Administrative Wage Garnishment (AWG), Treasury Offset against your federal salary, pension, benefits, contractor payments and/or tax refunds. Private collection agencies can be brought in to help them collect the outstanding debt. Further, your SBA debt can also be referred to the Department of Justice for collection litigation
Therefore, if your case is still with the SBA, it’s best to respond to the 60-Day Official Notice and petition for an SBA Offer in Compromise or, if you don’t qualify for an SBA OIC, to negotiate a Repayment Agreement. But if your case has been transferred to Treasury, and if there are grounds to do so, you should try to recall your debt back to the SBA. If you did NOT receive the Official 60-Day Notice from the SBA, you will want to hire qualified attorneys to leverage your rights to try and get your case recalled from Treasury back to the SBA for resolution.
If you need help with an SBA offer in compromise or would like to know if your SBA debt can be recalled from Treasury Department’s Bureau of Fiscal Service, contact us today for a Free initial case evaluation with an experienced SBA and Treasury workout attorney at 1-888-756-9969
We can analyze your prospects for an SBA offer in compromise, help neutralize Treasury’s aggressive collection demands and find out if your case is eligible for recall from Treasury back to the SBA.
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.
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.
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.
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