SBA Loan Default: You Pledged Your Personal Residence, Now What?
We will analyze your SBA loan problems and advise you on potential solutions such as an SBA offer in compromise for 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 personally guaranteed SBA 7(a) loan for $350,000. The small business failed but because of the personal guarantee liability, the client continued to pay the monthly principal & interest out-of-pocket draining his savings. Client hired a local attorney but quickly realized that he was not familiar with SBA-backed loans or their standard operating procedures. Our firm was subsequently hired after the client received the SBA's official 60-day notice. After back-and-forth negotiations, we were able to convince the SBA to reinstate the loan, retract the acceleration of the outstanding balance, modify the original terms, and approve a structured workout reducing the interest rate from 7.75% to 0% and extending the maturity date for a longer period to make the monthly payments affordable. In conclusion, not only we were able to help the client avoid litigation and bankruptcy, but we also save him approximately $227,945 over the term of the workout.
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.
Client personally guaranteed SBA 7(a) loan balance of $58,000. Client received Notice of Intent to initiate Administrative Wage Garnishment (AWG) Proceedings. We represented client at the Hearing and successfully defeated the AWG Order based on several legal and equitable grounds.
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