Are you currently struggling with SBA debt? You don't have to deal with this alone. The following is a guide for an effective SBA offer in compromise strategy.
If you're facing SBA loan default, the best choice you can make is to get help. It can be hard to know what to do in this situation, but reacting quickly and effectively is critical when it comes to reaching a settlement. Failing to address the problem only leads to more problems down the road and significant additional fees and costs.
This article will go through the three main elements of an effective SBA offer in compromise strategy including the three keys to an effective SBA offer in compromise.
What is an SBA offer in compromise? An SBA offer in compromise consists of paying a portion of the SBA to have the SBA consider the debt paid and thereafter will no longer seek collection from the alleged debtor.
The general requirements for compromise of a debt owed on an SBA loan are as follows:
- The loan must be classified in liquidation status;
- The person making the offer must not currently be in bankruptcy;
- The full amount owed on the loan cannot be recovered because:
- The debtor is unable to pay it in a reasonable time;
- It cannot be collected through enforced collection proceedings within a reasonable amount of time;
- The cost of collection does not justify enforced collection of it;
- There is significant litigative risk, i.e., a real doubt concerning the ability to prevail in court because of legal issues or factual disputes;
- Given the debtor’s special circumstances, (e.g., illness), paying it would cause financial hardship.
- Collection of the loan balance is not barred by a valid legal defense such as discharge in bankruptcy or the statute of limitations;
- The debtor has not engaged in fraud, misrepresentation or other financial misconduct; and
- The compromise amount bears a reasonable relationship to the amount that could be recovered in a reasonable amount of time through enforced collection proceedings and is sufficient to protect the integrity of the SBA loan program.
Demonstrate That The Full Amount Of The SBA Loan Cannot Be Recovered Within A Reasonable Amount Of Time
You must show that you don’t have the means to pay the full amount of the debt within a reasonable amount of time. Naturally, the higher the debt, the less chance there is that you could pay the full amount of the debt. Usually, for instance, a person with a $35,000 debt will have a harder time showing an inability to pay within a reasonable amount of time than a person with a $2,000,000 debt.
In either case, an experienced SBA workout attorney can help show the SBA why the debtor cannot pay within a reasonable amount of time and why a SBA offer in compromise provides a better recovery for the SBA. Certain issues an SBA attorney can address include how to determine the value of real estate for purposes of an offer in compromise. Real estate may have a certain fair market value, but that value differs from what the SBA could reasonably expect to extract. An experienced SBA attorney can address those type of issues.
Other issues such as what is your disposable income every month require experienced analysis. You may be missing monthly deductions to your monthly income that show an inability to pay within a reasonable amount of time.
- Establish Significant Litigative Risk
Your SBA offer in compromise strategy should establish significant litigative risk, i.e., a real doubt concerning the ability to prevail in court because of legal issues or factual disputes.
Only a qualified attorney can adequately address any litigative risk issues. The process includes obtaining the SBA loan file from the SBA and performing a detailed analysis of the documents therein. Are there issues with the personal guarantees? Are the loan documents in proper order? Is the amount being sought by the SBA correct? Did the SBA or bank make any misrepresentations? Were you provided proper due process? These issues and more may present a litigative risk that if presented properly will provide you with more leverage in negotiating an SBA offer in compromise and is part of an effective SBA offer in compromise strategy.
- Show The Offer In Compromise Represents A Better Recovery Than Enforced Collection
The SBA will not agree to an offer in compromise if it believes it could recover more by referring the debt to the Department of Treasury for collection. The Department of Treasury can use several collection tactics such as administrative wage garnishment, tax refund offset, federal payment offset and litigation to collect on the debt.
Your SBA offer in compromise must demonstrate that your settlement amount is a better deal that what the SBA could hope to collect through enforced collection via referral to the Department of Treasury. This requires a detailed analysis of what the government would hope to collect through enforced collection. As such, a successful SBA offer in compromise should “do the math” regarding enforced collection. Naturally, an experienced SBA attorney is best suited to perform this analysis.
An attorney can help you come out of the SBA loan default process on top with an effective SBA offer in compromise strategy. Remember, hiding your head in the sand when faced with an SBA loan default will only result in more pain down the line. Once your debt is referred to the Department of Treasury, the Department of Treasury adds 28%-30% to the debt. This means, for instance, for every $100,000 the SBA alleges you owe, once the SBA refers it to the Department of Treasury an additional $28,000 - $30,000 gets tacked on to the debt.
By providing the best legal help, an SBA attorney can fight for your rights and protect you much better than you could on your own or with an inexperienced attorney or non-attorney. Protect Law Group knows the ins and outs of an effective SBA offer in compromise strategy.
Do you have more questions about your SBA offer in compromise? Set up a consultation today with an experienced SBA workout attorney.