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What Advantages Does an Offer in Compromise Have Over Bankruptcy?

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.

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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:

  1. 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.
  2. 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.
  3. 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.
  4. 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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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?

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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

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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

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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 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.



Clients 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.

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