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SBA Loan Default: Bankruptcy

Dealing with an SBA OIC case can be hard. You should allow one of our lawyers to settle SBA debt on for you. Talk to us about your SBA loan default today.

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SBA Loan Default: Bankruptcy

You should not have to struggle to settle SBA debt on your own. Instead, turn to one of our attorneys who specializes in SBA OIC claims. We are dedicated to helping you settle SBA loan default.

If you have an SBA loan default you may be thinking about bankruptcy.  However, filing for bankruptcy instead of pursuing an SBA OIC to settle SBA debt may not always be the best way.

Disadvantages Of Chapter 7

o  Taking bankruptcy can weaken your ability to get credit, especially at a low interest rate. Also, your bankruptcy may haunt you when a prospective employer looks up your credit report as part of reference check.

o  The trustee takes over complete control of your debts and finances from the day you file until the judge discharges your case.  You can't spend anything without the trustee's approval.

o  For Sole Proprietors and Partnerships: The costs, hassles and surrendering of your property could cause you to close your business.

o  You may lose a large amount of wealth if you have a large amount of nonexempt personal property or a large amount of equity in secured assets such as one or more of your cars.

Disadvantages Of Chapter 11

o The process of obtaining approval of your reorganization plan is long and expensive.

Chapter 11 cases are subject to much more assertive and aggressive creditor action, including adversary actions (lawsuits filed within the context of the bankruptcy proceeding).  Active creditors make Chapter 11 cases more expensive and more drawn out for long periods of time. As a general rule of thumb, Chapter 11 cases will cost $50,000 at a minimum and most attorneys will ask for $20,000 or more up front.

Final Thoughts on Filing Bankruptcy:

o Filing for bankruptcy does have a “hidden” cost.  Operating in the business world is complicated when the borrower files for bankruptcy, and these complications can cost real money over the 10 years that a bankruptcy is reported on a credit report.  It has been estimated that the cost of filing bankruptcy is between $75,000 – $125,000.  Stated another way, if an SBA debtor can afford an OIC settlement for less, it is probably a good idea to try and obtain an SBA OIC or DOT compromise.  However, if the SBA OIC or DOT compromise settlement cost is higher than the “hidden” bankruptcy cost, then the SBA debtor should probably seek protection through a bankruptcy.

This video also covers SBA loan default and bankruptcy:

https://www.youtube.com/watch?v=nrVUWHGKvbw

Why Hire Us to Help You with Your Treasury or SBA Debt Problems?

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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

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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

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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.

$150,000 SBA 7A LOAN – NEGOTIATED WORKOUT AGREEMENT

$150,000 SBA 7A LOAN – NEGOTIATED WORKOUT AGREEMENT

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.

$310,000 SBA 7A LOAN - SBA OIC TERM WORKOUT

$310,000 SBA 7A LOAN - SBA OIC TERM WORKOUT

Client personally guaranteed an SBA 7(a) loan for $100,000 from the lender. The SBA loan went into early default in 2006 less than 12 months from disbursement. The SBA paid the 7(a) guaranty monies to the lender and subsequently acquired the deficiency balance of about $96,000, including the right to collect against the guarantor. However, the SBA sent the Official 60-Day Due Process Notice to the Client's defunct business address instead of his personal residence, which he never received. As a result, the debt was transferred to Treasury's Bureau of Fiscal Service where substantial collection fees were assessed, including accrued interest per the promissory note. Treasury eventually referred the debt to a Private Collection Agency (PCA) - Pioneer Credit Recovery, Inc. Pioneer sent a demand letter claiming a debt balance of almost $310,000 - a shocking 223% increase from the original loan amount assigned to the SBA. Client's social security disability benefits were seized through the Treasury Offset Program (TOP). Client hired the Firm to represent him as the debt continued to snowball despite seizure of his social security benefits and federal tax refunds as the involuntary payments were first applied to Treasury's collection fees, then to accrued interest with minimal allocation to the SBA principal balance.

We initially submitted a Cross-Servicing Dispute (CSD) challenging the referral of the debt to Treasury based on the defective notice sent to the defunct business address. Despite overwhelming evidence proving a violation of the Client's Due Process rights, the SBA still rejected the CSD. As a result, an Appeals Petition was filed with the SBA Office of Hearings & Appeals (OHA) Court challenging the SBA decision and its certification the debt was legally enforceable in the amount claimed. After several months of litigation before the SBA OHA Court, our Firm Attorney successfully negotiated an Offer in Compromise (OIC) Term Workout with the SBA Supervising Trial Attorney for $82,000 spread over a term of 74 months at a significantly reduced interest rate saving the Client an estimated $241,000 in Treasury collection fees, accrued interest (contract interest rate and Current Value of Funds Rate (CVFR)), and the PCA contingency fee.

$150,000 SBA COVID EIDL - OFFER IN COMPROMISE & RELEASE OF COLLATERAL

$150,000 SBA COVID EIDL - OFFER IN COMPROMISE & RELEASE OF COLLATERAL

Our firm successfully facilitated the SBA settlement of a COVID-19 Economic Injury Disaster Loan (EIDL) where borrower received an SBA disaster loan of $150,000, but due to the severe economic impact of the COVID-19 pandemic, the business was unable to recover.

Despite the borrower’s efforts to maintain operations, shutdowns and restrictions significantly reduced the customer base and revenue, making continued operations unsustainable. After a thorough business closure review, we negotiated with the SBA, securing a resolution where the borrower paid only $6,015 to release the collateral, with no further financial liability for the owner/officer.

This case demonstrates how businesses affected by the pandemic can navigate SBA loan settlements effectively. If your business is struggling with an SBA EIDL loan, we specialize in SBA Offer in Compromise (SBA OIC) solutions to help close outstanding debts while minimizing financial burden.

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