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Should I File an SBA Loan Bankruptcy?

In unprecedented economic times, you may be considering shutting your business. But you have an SBA loan. Does an SBA loan bankruptcy apply to you? Read on.

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Should I File an SBA Loan Bankruptcy?

Unfortunately, the COVID pandemic and subsequent business shut downs and restrictions impacted many businesses.  Moreover, you have decided you can no longer keep your business going.  However, you have an outstanding SBA loan.  Does an SBA loan bankruptcy for your business make sense?

SBA Loan Bankruptcy

Chapter 7 and the SBA Loan

In most situations, bankrupting your business if it is a C corporation, S corporation or limited liability corporation (LLC) will not make sense.  Understand, the SBA loan process granted the lender a lien on all of the business assets.  As such, the lender retains the right to foreclose on the business assets despite a bankruptcy filing.  More than likely, no other assets will exists for the bankruptcy trustee to disperse to other creditors.

However, in certain situations you may want to consider an SBA loan bankruptcy for your corporation or LLC.  For instance, if the business has certain assets that the SBA lender does not have a lien position and your business has multiple creditors, a Chapter 7 may make sense for an orderly winding down of the business and distribution of assets.  Moreover, if one or more lawsuits involve your business a Chapter 7 bankruptcy would stop the lawsuits and allow a controlled winding down of the business.

Chapter 7 and the Sole Proprietorship

If, however, you operated your business as a sole proprietorship then an SBA loan bankruptcy may make more sense.  Under this scenario, you remain personally liable for the loan.  Even if you only pledged business assets as collateral, the lender can still sue you to pursue recovery.  Now, your personal assets are at risk.  A Chapter 7 bankruptcy will half any collection actions and, importantly, discharge the SBA loan obligation.

On the other hand, if you pledged your house as collateral, a Chapter 7 bankruptcy will not prevent the lender from foreclosing on your house.  The lender can obtain leave from the bankruptcy stay and pursue your house to repay the loan.  To that end, read your loan documents carefully so you know what you are putting at risk.

What If I Did Pledge My House as Collateral?

If, as part of your loan, you did pledge your house as collateral, now you need to focus on saving your property. In this case, a Chapter 11 Subchapter V bankruptcy may be to your advantage.  The Chapter 11 Subchapter V bankruptcy provides you with the opportunity to repay the debt on terms you can afford.  Therefore, instead of paying the debt in full upon demand by the lender or face foreclosure, your bankruptcy plan can propose terms of repayment - over a number a years.

Therefore, although you will have to pay the debt, the Chapter 11 Subchapter V allows you to keep your house.  The Chapter 11 process requires you to pay the secured debt (the lien on your house) in full.  However, your remaining debts would be paid off proportionately under your bankruptcy repayment plan.  To that end, unsecured creditors may be paid but not in full and only a portion of the debt.

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.



Clients borrowed and personally guaranteed an SBA 7(a) loan.  Clients defaulted on the SBA loan and were sued in federal district court for breach of contract.  The SBA lender demanded the Client pledge several personal real estate properties as collateral to reinstate and secure the defaulted SBA loan.  We were subsequently hired to intervene and aggressively defend the lawsuit.  After several months of litigation, our attorneys negotiated a reinstatement of the SBA loan and a structured workout that did not involve any liens against the Client's personal real estate holdings.



Clients personally guaranteed an SBA 7(a) loan that was referred to the Department of Treasury for collection.  Treasury claimed our clients owed over $220,000 once it added its statutory collection fees and interest.  We were able to negotiate a significant reduction of the total claimed amount from $220,000 to $119,000, saving the clients over $100,000 by arguing for a waiver of the statutory 28%-30% administrative fees and costs.



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.

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