WILL EXPANDED SBA EXPOSURE TO START UPS CAUSE MORE SBA LOAN DEFAULTS?
We provide people who are facing an SBA loan default with solutions. We analyze SBA loan problems and provide solutions such as an SBA offer in compromise.
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 clients are personally guaranteed an SBA 7(a) loan. The SBA referred the debt to the Department of Treasury, which was seeking payment of $487,981 from our clients. We initially filed a Cross-Servicing Dispute, which was denied. As a result, we filed an Appeals Petition with the SBA Office of Hearings and Appeals asserting legal defenses and supporting evidence uncovered during the discovery and investigation phase of our services. Ultimately, the SBA settled the debt for $25,000 - saving our clients approximately $462,981.
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.
Our firm successfully resolved an SBA COVID-19 Economic Injury Disaster Loan (EIDL) default in the amount of $150,000 on behalf of Illinois-based client. After the business permanently closed due to the economic impacts of the pandemic, the owners faced potential personal liability if the business collateral was not liquidated properly under the SBA Security Agreement.
We guided the client through the SBA’s Business Closure Review process, prepared a comprehensive financial submission, and negotiated directly with the SBA to release the collateral securing the loan. The borrower satisfied their collateral obligations with a payment of $2,075, resolving the SBA’s security interest.
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