Impact of EIDL Loan Defaults on Credit and Treasury Actions
Defaulting on a COVID EIDL loan can seriously affect your credit and trigger federal collection actions like the Treasury Offset Program. Learn what happens and how to protect yourself.
Small businesses facing a loan default must take immediate action. A default could provide their lender with the legal right to seize all collateral used to secure the loan. This could include the building from which their company operates. Since these loans are backed by a personal guarantee and government funding, they require specific actions through an attorney. Local attorneys could help business owners acquire a SBA Offer in Compromise to settle their debt.
The first step when the owner receives a SBA demand letter is to seek legal counsel. An attorney could provide clarity about effective strategies to prevent a complete foreclosure of their property. A foreclosure could generate a higher loss for the business owner. This could also destroy their credit and make it impossible to acquire a different property later.
The next step is to complete the paperwork for the SBA offer in compromise. These documents provide a legal request for the offer in compromise. The attorney calculates the total value in which the borrower could pay to settle the SBA loan default. These documents are filed through the court once the compromise is accepted.
The attorney could also provide assistance through a Tax Offset Program. This helps the business owner acquire a settlement offer for any overdue tax payments associated with their company. They can submit these requests at the same time as the offer in compromise request.
The borrower should work with the attorney to acquire the most effective settlement. This could include closing the doors of their business and arranging the sale of the property. This could increase their odds of acquiring acceptance. It could also improve their ability to pay.
Lenders often accept these offers when the borrower can prove that they have the ability to pay the agreed upon value. This could prevent the likelihood of a SBA loan foreclosure and secure the borrower's credit.
Small businesses acquire government-backed loans to start new ventures. Unfortunately, select ventures may become unsuccessful. This could lead to a loan default and possible foreclosure. Business owners who need help should contact an attorney who could manage an offer of compromise for them today.
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.
Our firm successfully resolved an SBA 7a loan in the original amount of $364,000 for a New Jersey-based borrower. The client filed Chapter 7 bankruptcy but the mortgage on his real estate securing the loan remained in place. The available equity amounted to $263,470 and the deficiency equaled $317,886.
We gathered the pertinent documentation and prepared a comprehensive collateral analysis. We negotiated directly with the SBA, obtaining a full release of the mortgage for $80,000.
Client personally guaranteed an SBA 7(a) loan for $100,000 from the lender. The SBA loan went into early default in 2006 less than 12 months from disbursement. The SBA paid the 7(a) guaranty monies to the lender and subsequently acquired the deficiency balance of about $96,000, including the right to collect against the guarantor. However, the SBA sent the Official 60-Day Due Process Notice to the Client's defunct business address instead of his personal residence, which he never received. As a result, the debt was transferred to Treasury's Bureau of Fiscal Service where substantial collection fees were assessed, including accrued interest per the promissory note. Treasury eventually referred the debt to a Private Collection Agency (PCA) - Pioneer Credit Recovery, Inc. Pioneer sent a demand letter claiming a debt balance of almost $310,000 - a shocking 223% increase from the original loan amount assigned to the SBA. Client's social security disability benefits were seized through the Treasury Offset Program (TOP). Client hired the Firm to represent him as the debt continued to snowball despite seizure of his social security benefits and federal tax refunds as the involuntary payments were first applied to Treasury's collection fees, then to accrued interest with minimal allocation to the SBA principal balance.
We initially submitted a Cross-Servicing Dispute (CSD) challenging the referral of the debt to Treasury based on the defective notice sent to the defunct business address. Despite overwhelming evidence proving a violation of the Client's Due Process rights, the SBA still rejected the CSD. As a result, an Appeals Petition was filed with the SBA Office of Hearings & Appeals (OHA) Court challenging the SBA decision and its certification the debt was legally enforceable in the amount claimed. After several months of litigation before the SBA OHA Court, our Firm Attorney successfully negotiated an Offer in Compromise (OIC) Term Workout with the SBA Supervising Trial Attorney for $82,000 spread over a term of 74 months at a significantly reduced interest rate saving the Client an estimated $241,000 in Treasury collection fees, accrued interest (contract interest rate and Current Value of Funds Rate (CVFR)), and the PCA contingency fee.
Client personally guaranteed SBA 7(a) loan balance of $58,000. The client received a notice of Intent to initiate Administrative Wage Garnishment (AWG) Proceedings. We represented the client at the hearing and successfully defeated the AWG Order based on several legal and equitable grounds.
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