Chapter 11 Subchapter V Bankruptcy: Explained in Plain English
Chapter 11 Subchapter V has redefined the process of small business bankruptcies. Learn what's changed (and how Protect Law Group can help) in this guide.
Small business owners need to re-evaluate their finances when they face a loan default. This occurrence could lead to devastating effects for the business. When they have a loan default through the Small Business Administration, they could face more than just a financial loss. They could lose everything they own quickly. A SBA Offer in Compromise is the first step for avoiding a total loss.
If the lender accepts a settlement, the borrower could achieve closure for the loan. Their attorney works with their lender to identify the most acceptable compromise. The offer of compromise includes a balance that is less than the total balance and allows the business owner to settle the debt quickly. Once the offer is accepted, the business owner no longer has any obligation to the lender.
If the borrower chose bankruptcy, first they would have to qualify for their chosen chapter. If they select chapter 13, they are required to pay a fixed balance each month. If they cannot pay this balance each month, the case is dismissed. When this occurs, they are responsible for all debts included immediately. Since the bankruptcy case remains on their credit history for at least ten years, it prevents them from opening new lines of credit. For companies that are trying to rebuild after financial issues, this could have disastrous effects. This is why the borrower must choose a compromise instead of bankruptcy when they have a SBA loan default.
If the borrower doesn't manage the default, they could face foreclosure. The moment they receive the SBA demand letter the wheels are in motion already. At this point, the lender has the right to seize property to settle the debt. Through a SBA loan foreclosure, the lender could acquire the business property and all assets.
Small business owners need assistance before they default on their SBA loan. By taking earlier action, they could avoid potential hardships that could lead to financial ruin. Business owners who need to discuss a compromise or enter into a Tax Offset Program should contact an attorney immediately.
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’s small business obtained an SBA 7(a) loan for $750,000. She and her husband signed personal guarantees exposing all of their non-exempt income and assets. With just 18 months left on the maturity date and payment on the remaining balance, the Great Recession of 2008 hit, which ultimately caused the business to fail and default on the loan terms. The 7(a) lender accelerated and sent a demand for full payment of the remaining loan balance. The SBA lender’s note allowed for a default interest rate of about 7% per year. In response to the lender's aggressive collection action, Client's husband filed for Chapter 7 bankruptcy in an attempt to protect against their personal assets. However, his bankruptcy discharge did not relieve the Client's personal guarantee liability for the SBA debt. The SBA lender opted to pursue the SBA 7(a) Guaranty and subsequently assigned the loan and the right to enforce collection against the Client to the SBA. The Client then received the SBA Official 60-Day Notice. After conducting a Case Evaluation with her, she then hired the Firm to respond and negotiate on her behalf with just 34 days left before the impending referral to Treasury. The Client wanted to dispute the SBA’s alleged debt balance as stated in the 60-Day Notice by claiming the 7(a) lender failed to liquidate business collateral in a commercially reasonable manner - which if done properly - proceeds would have paid back the entire debt balance. However, due to time constraints, waivers contained in the SBA loan instruments, including the fact the Client was not able to inspect the SBA's records for investigation purposes before the remaining deadline, Client agreed to submit a Structured Workout for the alleged balance in response to the Official 60-Day Notice as she was not eligible for an Offer in Compromise (OIC) because of equity in non-exempt income and assets. After back and forth negotiations, the SBA Loan Specialist approved the Workout proposal, reducing the Client's purported liability by nearly $142,142.27 in accrued interest, and statutory collection fees. Without the Firm's intervention and subsequent approval of the Workout proposal, the Client's debt amount (with accrued interest, Treasury's statutory collection fee and Treasury's interest based on the Current Value of Funds Rate (CVFR) would have been nearly $291,030.
Clients personally guaranteed an SBA 504 loan balance of $337,000. The Third Party Lender had obtained a Judgment against the clients. We represented clients before the SBA and negotiated an SBA OIC that was accepted for $30,000.
Clients personally guaranteed SBA 7(a) loan balance of over $300,000. Clients also pledged their homes as additional collateral. SBA OIC accepted $87,000 with the full lien release against the home.
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