Federal Student Loan Default - No Time Limit On Offsets
Dealing with a federal student loan default is hard. Allow our lawyers to resolve your federal student loan administrative wage garnishment or tax offset.
Filing bankruptcy may not solve your SBA loan default problems. Aside from other financial considerations, the government may still be able to offset against your assets.
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The Bankruptcy Code preserves a creditor’s right to setoff. Section 553(a) of the Bankruptcy Code provides:
Except as otherwise provided in this section and sections 362 and 363 of this title, this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case.
Setoff requires mutuality in that the indebtedness must be between the same parties. For bankruptcy purposes, this generally requires that both debts (i.e., the debt owed by the debtor and the debt owed to the debtor) fall on the same side of the bankruptcy line (i.e., on the same side of the timeline marked by the filing of the petition). That is, with some exceptions, both debts must be prepetition or both debts must be postpetition. Creditors with prepetition setoff rights have a secured claim under section 506(a)(1) of the Bankruptcy Code.
Federal agencies are authorized to intercept certain federal payments to collect delinquent debt owed to the United States. This includes the authority to offset tax overpayments for debts owed to the United States. This applies only to tax refunds for years before the debtor filed for bankruptcy protection. Offsets for postpetition years are not allowed, unless the debtor owes postpetition debts to the United States.
For a creditor to have setoff rights both the obligation of the creditor to the debtor and the debtor’s obligation to the creditor must arise prior to the petition date. While the most common example of when both obligations would arise prepetition in the federal debt collection context is when the debtor has made overpayments of federal tax in the year preceding its bankruptcy filing, there are other circumstances where an obligation of the United States may arise prior to the petition date. For example, certain portions of a federal salary payment may have accrued to the debtor prior to the petition date, and to the extent the debtor owed the United States a federal debt prior to the petition date, the United States would have setoff rights with regard to those portions of the federal salary payment. The same would be true for retirement payments, vendor payments, and tort payments, to the extent the right to those payments arose prior to the petition date. To the extent a creditor agency is aware of a federal payment to which the debtor is entitled, the agency should analyze whether its setoff rights have been preserved by the Bankruptcy Code.
If you are facing an SBA loan default, contact Protect Law Group today at www.sba-attorneys.com or 1-888-756-9969 to schedule your initial consultation.
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.
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.
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.
Our firm successfully resolved an SBA 7a loan in the original amount of $364,000 for a New Jersey-based borrower. The client filed Chapter 7 bankruptcy but the mortgage on his real estate securing the loan remained in place. The available equity amounted to $263,470 and the deficiency equaled $317,886.
We gathered the pertinent documentation and prepared a comprehensive collateral analysis. We negotiated directly with the SBA, obtaining a full release of the mortgage for $80,000.
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