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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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$750,000 SBA 504 LOAN - NEGOTIATED TERM REPAYMENT AGREEMENT

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.

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

The client personally guaranteed an SBA 7(a) loan for $150,000. His business revenue decreased significantly causing default and an accelerated balance of $143,000. The client received the SBA's Official 60-day notice with the debt scheduled for referral to the Treasury’s Bureau of Fiscal Service for aggressive collection in less than 26 days. We were hired to represent him, respond to the SBA's Official 60-day notice, and prevent enforced collection by the Treasury and the Department of Justice. We successfully negotiated a structured workout with an extended maturity date that included a reduction of the 14% interest rate and removal of substantial collection fees (30% of the loan balance), effectively saving the client over $242,000.

$298,000 SBA 7A LOAN - NEGOTIATED WORKOUT AGREEMENT

Clients obtained an SBA 7(a) loan for their small business in the amount of $298,000. They pledged their primary residence and personal guarantees as direct collateral for the loan. The business failed, the lender was paid the 7(a) guaranty money and the debt was assigned to the SBA. Clients received the Official 60-Day Notice giving them a couple of options to resolve the debt balance directly with the SBA before referral to Treasury's Bureau of Fiscal Service. The risk of referral to Treasury would add nearly $95,000 to the SBA principal loan balance. With the default interest rate at 7.5%, the amount of money to pay toward interest was projected at $198,600. Clients hired the Firm with only 4 days left to respond to the 60-Day due process notice. Because the clients were not eligible for an Offer in Compromise (OIC) due to the significant equity in their home and the SBA lien encumbering it, the Firm Attorneys proposed a Structured Workout to resolve the SBA debt. After back and forth negotiations, the SBA Loan Specialist assigned to the case approved the Workout terms which prevented potential foreclosure of their home, but also saved the clients approximately $294,000 over the agreed-upon Workout term with a waiver of all contractual and statutory administrative fees, collection costs, penalties, and interest.

What Advantages Does an Offer in Compromise Have Over Bankruptcy?