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What Advantages Does an Offer in Compromise Have Over Bankruptcy?

What are the Advantages of an SBA OIC

When faced with a defaulted Small Business Administration (SBA) loan obligation, both an offer in compromise (OIC) and bankruptcy are potential options to consider. Each option has its advantages and considerations. Here are some advantages of an offer in compromise over filing for bankruptcy in the context of an SBA loan:

Debt Resolution: An offer in compromise allows you to negotiate a settlement with the SBA to resolve the debt. If accepted, the SBA agrees to accept a reduced amount as full satisfaction of the debt. This can provide a quicker resolution compared to bankruptcy, which may involve a more extensive legal process.
Potential Debt Reduction: With an offer in compromise, you have the opportunity to negotiate a reduced settlement amount that is affordable for you. This can help alleviate the financial burden and potentially reduce the total amount you owe to the SBA.
Avoiding Bankruptcy Effects: Filing for bankruptcy can have long-lasting effects on your credit history and financial reputation. By pursuing an offer in compromise, you may be able to avoid or lessen the negative consequences associated with bankruptcy and maintain a better credit profile.
Specific to SBA Loan: An offer in compromise is a direct negotiation with the SBA regarding the defaulted loan. This allows you to address the specific terms and conditions of your SBA loan and work towards a resolution tailored to your situation. Bankruptcy, on the other hand, is a more general legal process that may not specifically target the SBA loan.

What are the Disadvantages of Bankruptcy

Filing for bankruptcy when you owe on a defaulted SBA loan can have several pitfalls and considerations. Here are some potential pitfalls to be aware of:

Limited Dischargeability: SBA loans are typically not dischargeable in bankruptcy under certain circumstances. While filing for bankruptcy may provide relief for other debts, such as credit card debt or medical bills, it may not eliminate your obligation to repay the SBA loan if the SBA alleges and proves that fraud was committed in obtaining the loan or if loan proceeds of an EIDL loan were used for personal use. This means you may still be responsible for repaying the loan even after the bankruptcy process.
Potential Loss of Collateral: If your SBA loan is secured by collateral, such as real estate or business assets, filing for bankruptcy may not protect you from losing the collateral. Depending on the specific circumstances and the type of bankruptcy you file (Chapter 7 or Chapter 13), the SBA or the lender may have the right to seek recovery of the collateral.
Impact on Credit: Bankruptcy has a significant impact on your credit history and credit score. A bankruptcy filing can remain on your credit report for several years, making it challenging to obtain credit in the future. This can affect your ability to secure financing for personal or business needs.
Public Record: Bankruptcy filings are public records, which means they can be accessed by anyone who searches for them. This lack of privacy may have personal and professional implications, as potential lenders, employers, or business partners may consider your bankruptcy history when making decisions.
Potential Legal Costs: Filing for bankruptcy involves legal fees and expenses. Depending on the complexity of your case and the type of bankruptcy you pursue, these costs can add up. It's important to consider these expenses when evaluating the financial implications of filing for bankruptcy.
Future Business Opportunities: Filing for bankruptcy, particularly if you are a business owner, may have an impact on your future business opportunities. It can affect your ability to secure loans, attract investors, or obtain favorable business relationships.

Contact Protect Law Group About Your SBA Loan Matter

It's important to note that the suitability of an offer in compromise or bankruptcy depends on your individual circumstances. Consider consulting with one of our SBA debt attorneys who can assess your specific situation and provide guidance on the best course of action. They can help you weigh the advantages and disadvantages of each option and determine which approach aligns best with your financial goals and circumstances.

Why Hire Us to Help You with Your Treasury or SBA Debt Problems?

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.

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$324,000 SBA 7A LOAN - SBA OHA LITIGATION

Clients obtained an SBA 7(a) loan for $324,000 to buy a small business and its facility. The business and real estate had an appraisal value of $318,000 at the time of purchase. The business ultimately failed but the participating lender abandoned the business equipment and real estate collateral even though it had valid security liens. As a result, the lender recouped nearly nothing from the pledged collateral, leaving the business owners liable for the deficiency balance. The SBA paid the lender the 7(a) guaranty money and was assigned ownership of the debt, including the right to collect. However, the clients never received the SBA Official 60-Day Notice and were denied the opportunity to negotiate an Offer in Compromise (OIC) or a Workout directly with the SBA before being transferred to Treasury's Bureau of Fiscal Service, which added an additional $80,000 in collection fees. Treasury garnished and offset the clients' wages, federal salary and social security benefits. When the clients tried to negotiate with Treasury by themselves, they were offered an unaffordable repayment plan which would have caused severe financial hardship. Clients subsequently hired the Firm to litigate an Appeals Petition before the SBA Office & Hearings Appeals (OHA) challenging the legal enforceability and amount of the debt. The Firm successfully negotiated a term OIC that was approved by the SBA Office of General Counsel, saving the clients approximately $205,000.

$150,000 SBA 7A LOAN - NEGOTIATED STRUCTURED WORKOUT AGREEMENT

Client personally guaranteed SBA 7(a) loan for $150,000. COVID-19 caused the business to fail, and the loan went into default with a balance of $133,000. Client initially hired a non-attorney consultant to negotiate an OIC. The SBA summarily rejected the ineligible OIC and the debt was referred to Treasury’s ureau of Fiscal Service for enforced collection in the debt amount of $195,000. We were hired to intervene and initiated discovery for SBA and Fiscal Service records. We were able to recall the case from Fiscal Service back to the SBA. We then negotiated a structured workout with favorable terms that saves the client approximately $198,000 over the agreed-upon workout term by waiving contractual and statutory administrative fees, collection costs, penalties, and interest.

$383,000 SBA 7A LOAN - NEGOTIATED RELEASE OF LIEN FOR CONSIDERATION

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.

What Advantages Does an Offer in Compromise Have Over Bankruptcy?