SBA OIC: Deferment v. Liquidation
Dealing with an SBA OIC case can be hard, this is why you should allow one of our lawyers to settle your SBA debt. Talk to us about your SBA loan default.
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.
Book a Consultation CallUnfortunately, 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
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.
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.
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.
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.
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.
Clients executed several trust deeds pledging seven (7) real estate properties and unconditional personal guarantees for an SBA 7(a) loan from the participating lender. The clients' small business failed and eventually defaulted on repayment of the loan exposing all collateral pledged by the clients. The SBA subsequently acquired the loan balance from the lender, including the right to liquidate and collect all pledged collateral pursuant to the trust deed instruments.
The Firm was hired to negotiate separate release of lien proposals for all 7 real estate properties. In preparation for the work assignment, the Firm Attorneys initiated discovery to secure records from the SBA and Treasury's Bureau of Fiscal Service. After reviewing the records and understanding the interplay between the lender and the SBA, the attorneys then prepared, submitted and negotiated the release of lien (ROL) for each of the 7 real estate properties for consideration.
After submitting the proposals, the assigned SBA Loan Specialists approved each ROL package - significantly reducing the total SBA debt claimed.
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.
.jpg)
