Can the Department of Treasury Garnish Wages?
Can the Department of Treasury garnish wages from your paycheck? Depending on the debt, the answer is yes. Learn what you need to know here.
What happens if you don't pay back your SBA loan? If you signed a personal guarantee, the SBA and the federal government will want you to pay the loan.
Book a Consultation CallSBA Loan Default
Before we can answer what happens if I don't pay back an SBA loan, you need to understand your liability. Businesses use SBA 7a loans for working capital. A third party lender, such as Wells Fargo, comprises the lending institution and the SBA guarantees a portion of the loan in the event of default. Usually, the borrower consists of your separate business entity that you own and operate - a corporation or a limited liability company (LLC).
However, the lender and the SBA require you, as a 20% or more owner, to sign a personal guarantee. You can download a copy of Form 148, the personal guarantee, that is commonly used for SBA loans. In some situations, the lender/SBA will require that you pledge personal collateral, such as your house or a rental property. Your business also pledges all of its assets, tangible and intangible, as collateral.
Now we can answer what happens if I can't pay an SBA loan. Several consequences result when your business defaults on an SBA loan. First, the lender will seek payment from the business for the outstanding balance of the loan. However, if the business cannot pay the full amount, the lender will foreclose on the collateral pledged by the business. Your business assets may not have much value. In that case, the lender will abandon the collateral.
Now the lender will ask you to pay the amount due based on the personal guarantee you signed. Moreover, the lender will seek to foreclose on any personal collateral you pledged. The lender may also determine it should file a lawsuit against you in order to collect the debt.
In certain situations, especially when you have not pledged personal assets, the lender will conclude suing you as a personal guarantor is not worth the time or money. Thereafter, the lender will refer the debt to the SBA for collection. The SBA will send you a notice stating that you owe the debt. The notice will inform you that you have 60 days to pay or make other arrangements. Also, the notice will inform you that you have the ability to review documents related to your debt and a right to review if you believe you don't owe the debt.
If you fail to respond to the 60 day notice sent by the SBA, the SBA will refer your debt to the Treasury for collection. The Treasury has many options to collect the debt. For instance, the Treasury could refer the debt to the Department of Justice to file a lawsuit against you. In addition to filing suit, the Treasury can garnish your wages, take your tax refund, take some or all of any federal payments due you (i.e., Social Security, disability, military pension, etc.).
If your business defaulted on an SBA loan, you do have options available. The offer in compromise exists as a process wherein if you do not have the money to pay the debt in full, you can offer a portion as a settlement. Several factors both legal and financial go into whether an offer in compromise will be accepted and in what amount.
However, you need experienced legal counsel to greatly increase the chances of a successful offer in compromise. If you fail to submit the proper forms and documentation, your offer in compromise will be denied. Moreover, if you try to low-ball the SBA in your offer, you will find yourself facing aggressive collection tactics.
The attorneys at Protect Law Group provide you with the experience and assertive representation you need for a successful offer in compromise. Contact our offices today for a initial consultation.
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 COVID EIDL for $301,000 pledging collateral by executing the Note, Unconditional Guarantee and Security Agreement. The business defaulted on the loan and the SBA CESC called the Note and Guarantee, accelerated the principal balance due, accrued interest and retracted the 30-year term schedule.
The loan was transferred to the Treasury's Bureau of Fiscal Service which resulted in the statutory addition of $90,000+ in administrative fees, costs, penalties and interest with the total debt now at $391.000+. Treasury also initiated a Treasury Offset Program (TOP) levy against the client's federal contractor payments for the full amount each month - intercepting all of its revenue and pushing the business to the brink of bankruptcy.
The Firm was hired to investigate and find an alternate solution to the bankruptcy option. After submitting formal production requests for all government records, it was discovered that the SBA failed to send the required Official 60-Day Pre-Referral Notice to the borrower and guarantor prior to referring the debt to Treasury. This procedural due process violation served as the basis to submit a Cross-Servicing Dispute to recall the debt from Treasury back to the SBA and to negotiate a reinstatement of the original 30-year maturity date, a modified workout, cessation of the TOP levy against the federal contractor payments and removal of the $90,000+ Treasury-based collection fees, interest and penalties.
Our firm successfully facilitated the SBA settlement of a COVID-19 Economic Injury Disaster Loan (EIDL) where borrower received an SBA disaster loan of $150,000, but due to the severe economic impact of the COVID-19 pandemic, the business was unable to recover.
Despite the borrower’s efforts to maintain operations, shutdowns and restrictions significantly reduced the customer base and revenue, making continued operations unsustainable. After a thorough business closure review, we negotiated with the SBA, securing a resolution where the borrower paid only $6,015 to release the collateral, with no further financial liability for the owner/officer.
This case demonstrates how businesses affected by the pandemic can navigate SBA loan settlements effectively. If your business is struggling with an SBA EIDL loan, we specialize in SBA Offer in Compromise (SBA OIC) solutions to help close outstanding debts while minimizing financial burden.
Client personally guaranteed an SBA 7(a) loan to help with a relative’s new business venture. After the business failed, Treasury was able to secure a recurring Treasury Offset Program (TOP) levy against his monthly Social Security Benefits based on the claim that he owed over $1.2 million dollars. We initially submitted a Cross-Servicing Dispute, but then, prepared and filed an Appeals Petition with the SBA Office of Hearings and Appeals (SBA OHA). As a result of our efforts, we were able to convince the SBA to not only terminate the claimed debt of $1.2 million dollars against our client (without him having to file bankruptcy) but also refund the past recurring amounts that were offset from his Social Security Benefits in connection with the TOP levy.
.jpg)
