/in /by

 

The COVID-19 pandemic had massive economic implications across the country, many of which are still being felt today. 

Millions of homeowners fell behind on their mortgages, and while they received temporary relief through federal sponsored programs and legislation, those moratoriums have since ended.

In that time period, there’s been a surge in confusion surrounding loss-mitigation. Since 2020, the phrase “dual tracking”has become one of the most searched-for mortgage topics.

In 2024, the Consumer Financial Protection Bureau received more than 2.8 million complaints, and mortgages were among the top categories consumers reported about.

In this article, we’ll discuss in more detail what dual tracking is for mortgage foreclosures, as well as the rules and regulations surrounding it

What ‘Dual Tracking’ Actually Means in Plain English

Dual tracking is a process by which a mortgage loan servicer proceeds with a foreclosure while they review an application for loss mitigation at the same time.

During the housing crisis in the early part of the 2000s, dual tracking was unfortunately a common practice, which resulted in many homeowners being blindsided. Some had worked out loan modifications over the phone and then found out that their home was sold at auction anyway.

This was an unfair practice that federal regulators took notice of as the housing crisis slowed down.

Regulation X/RESPA Basics: The Federal Rules That Police Dual Tracking

The Real Estate Settlement Procedures Act (RESPA) first went into effect in June 1975. The federal law was first published by the Department of Housing and Urban Development (HUD), which at the time also published what’s known as Regulation X.

Essentially, RESPA requires that all mortgage brokers, servicers and lenders provide borrowers with timely and pertinent disclosure about the costs and nature of all steps in the home buying settlement process. It also prohibits kickbacks and places limits on how escrow accounts can be used.

Following the housing crisis, the CFPB established the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which took effect in early 2014. It revised Regulation X, adding protections for borrowers such as prohibiting the use of dual tracking.

According to the federal rules, all mortgage services have to pause any foreclosure action the moment a borrower requests financial assistance and formally completes an application.

While Regulation X doesn’t guarantee that borrowers will receive a loan modification, it does guarantee them the right to have their application reviewed by the servicer in a fair and timely manner. 

The Dual Tracking Timeline in Numbers: 120/45/37/30/14

Each state has the ability to create their own foreclosure rules and regulations, but all must abide by Regulation X. Part of this includes establishing a timeline for what happens during the foreclosure process.

Here are some of the important timelines in the process, as they relate to foreclosure and loan modification …

30: A loan service must evaluate borrowers for all available options and send a written decision within 30 days of receiving a complete application for loan modification or financial assistance.

37: If a borrower has completed an application more than 37 days before a sheriff’s sale, the mortgage service can’t conduct the sale, move for an order of sale or judgment while that application and any timely appeal is pending.

14: If a borrower completed an application more than 90 days before a sheriff’s sale, they get an appeal right. The servicer can’t foreclose on the home until the borrower’s appeal is decided and they’ve had at least 14 days to accept any offer.

45: If a foreclosure sale hasn’t yet been scheduled on the date when the loan servicer receives an application for loss mitigation, they must then treat that application as having been received 45 days or more before any foreclosure sale. This triggers written notice and document check rules.

120: The servicer can’t issue a foreclosure notice or official filing until a borrower is more than 120 days delinquent on the loan.

When Dual Tracking is Flat-Out Prohibited Under Regulation X

When a borrower has completed an application for loss mitigation, protections from foreclosure kick in under Regulation X. If the borrower’s application is incomplete, the loan servicer typically has more flexibility and the borrower has fewer protections under the law, though some changes in the law are working to change this.

For completed applications, the servicer is prohibited from moving forward on a foreclosure judgment or order of sale, and cannot conduct a serif’s sale. 

Loan servicers can move forward with the foreclosure process if the loss mitigation application was received 36 days or less before the sheriff’s sale, if the borrower rejects all the options offered to them, and if the borrower fails to meet a loss mitigation or trial plan agreement.

What Services Must Do on Time When You Apply for Help

Once a loan servicer has received an application for loss mitigation, they must provide an acknowledgement letter within five business days. This letter must outline whether the application is complete or not, what’s missing and a reasonable date by which the borrower must supply required documents.

Within 30 days, the servicer must complete a full evaluation of the application, including testing the borrower against all investor-approved options such as loan modification, repayment plans, forbearance and deferral.

If the application is denied, the servicer must provide clear reasons for the denial and provide the borrower with the timeline they have to appeal the decision, which is often at least 14 days.

How to Spot (and Prove) You’re Being Dual-Tracked

If you believe that you’re being dual-tracked, it’s important to look for common signs and gather proof so you can protect your interests and rights.

First, look for red flags in the mail and in your online account history. This could include sheriff’s sale dates that were set or changed after you completed your application, or motions for judgments that were filed while you were on a trial plan or pending review.

Compare the foreclosure timeline, including your payment history and the foreclosure steps that the servicer has taken.

Collect a paper trail to back up your points, including call logs, letters you’ve sent and received, screenshots in your account portal and payment receipts.

Legal Tools to Challenge Dual Tracking in Real Life

Borrowers can challenge dual tracking by sending a Notice of Error to the loan servicer. This notice must include the borrower’s name, information that will indicate the loan account such as a loan number, and an explanation of the error the borrower believes has occurred.

In this letter, you should specify the error and how it applies to federal laws 12 C.F.R. § 1024.35 and § 1024.41(g). Include supporting details such as copies of work, dates and times you spoke with someone at the company and their name, and any other relevant information.

Under Regulation X, servicers are required to submit a written response to the borrower within five business days acknowledging that they’ve received the error notice. The servicer can request additional information from the borrower as a condition to investigate it.

You can also file an online complaint with the CFPB, which will then route the issue directly to the company. Companies then generally respond directly to you within 15 days, but some will notify you that they are in the process of doing so and may take up to 60 days.

If your efforts are still unsuccessful at stopping dual tracking, you can request that a judge issue an injunction or stay of the sheriff’s sale based on violations of Regulation X. You can sue under RESPA’s private right of action, including potential statutory and actual damages plus attorney’s fees.

What to Do if Your Home Was Sold While a Mod Was Pending

If your home was sold at a sheriff’s sale while a loan modification was pending, there are some important steps that you should take to protect your rights.

First, check if your application was actually “complete” according to the definition outlined in Regulation X. Gather proof that your loan servicer moved for a judgment or held the sheriff’s sale despite you filing a complete application in a timely manner.

Quick legal action is essential if a wrongful sale has already happened to prevent the home from being taken from you illegally.

How Babi Legal Group Uses the Numbers and Rules to Protect Homeowners

Stopping dual tracking can be a complicated and complex process for borrowers. That’s why it’s always best to consult with an experienced lawyer such as the attorneys at Babi Legal Group.

We help our clients facing dual tracking audit the foreclosure timelines, lining up delinquency dates, application dates and sale dates against the legal framework. We identify Regulation X violations and build a record for the court or negotiation directly with the servicer.

We can help coordinate loss mitigation, litigation and bankruptcy (if necessary) to stop wrongful foreclosures and dual-tracking behavior.

To learn more about how we can help you, contact us today.

You’re Not Out — Michigan Redemption Rights Explained (What You Can Still Do After Foreclosure)

/in /by

 

Financial difficulties can lead to major problems and headaches if you’re unable to make payments. This is especially true with mortgages, as lenders can foreclose on borrowers homes and take possession of them once repayments are missed.

Part of the foreclosure process in Michigan involves a Sheriff’s Sale, during which the home is put up for sale through an auction process, with the highest bidder becoming the new owner of the property.

However, this is not the end of the line for borrowers, even though many Michigan homeowners might think so. Thanks to Michigan’s redemption period, borrowers can still reclaim their homes even after a sheriff’s sale has taken place.

So, while a sheriff’s sale might cause quite the psychological shock, Michigan’s laws protect homeowners, allowing them to not lose their homes even after the auction ends.

In this article, we’ll explain in more detail the foreclosure and redemption process in MIchigan.

What the Sheriff’s Sale Actually Changes (And What It Doesn’t)

Up until the actual Sheriff’s Sale takes place, the homeowner can still submit an application for loss mitigation. If that doesn’t happen, the Sheriff’s Sale will take place, at which time an auction will be held for the property.

The Sheriff’s Deed will list the last day that the property can be redeemed. 

The immediate thing that the completion of a Sheriff’s Sale does in Michigan is sell the property to a new owner. That owner (who is the winner of the auction) will receive the Sheriff’s Deed, which constitutes the legal change in title.

If no one purchases the property, it will be labeled REO, or Real Estate Owned. At this point, the borrower’s credit report will reflect the foreclosure.

Most importantly, though, the end of a Sheriff’s Sale starts the redemption period in Michigan.

What a Sheriff’s Sale doesn’t immediately change is the homeowner’s rights to the property. No homeowner is evicted from the property at this point, and they still have the option to regain ownership of the property.

Homeowners also generally are allowed to retain complete possession of their home through the entire redemption period, which we’ll discuss in more depth in the next section.

In other words, while the purchaser of the home at Sheriff’s Sale is the technical owner of the home at this point, they aren’t free and clear.

Your Statutory Rights to Stay in the Home During Redemption

A Sheriff’s Sale in Michigan doesn’t allow the buyer to legally remove the homeowner from the property. They are typically allowed to live in the property during the redemption period, and they’re not required to make payments anymore.

During this period, the homeowner does, however, need to maintain property insurance, maintain the utilities and the property itself if they are going to live in it. 

In addition, the homeowner has to allow the new purchaser to inspect the home and all of the structures on the property during the redemption period. 

Homeowners have to file a sworn Affidavit of Occupancy, which is filed with the county clerk, during the redemption period. This will prove that they are continuously living in the home, which protects their rights to live in it during the redemption period and to eventually redeem it if they want.

If this affidavit is not filed, state law (MCL 600.3241) will presume that the property is abandoned, which gives the owner rights to take possession of the property — even if the redemption period hasn’t ended.

Understanding the Michigan Redemption Clock

Michigan’s redemption period begins the day that the Sheriff’s Sale is held. In most cases, it will last for six months from this time.

There are some instances in which the redemption period can be extended to up to 12 months. For instance, farming property can qualify for this extended period, and so can any property if the amount that is still due on the mortgage is less than two-thirds of what the original amount owed was.

The redemption period can become shorter, though, if the property is found to be abandoned. This can happen if the homeowner actually leaves the property, if they do not file the sworn Affidavit of Occupancy, if they cause damage to the home or if they refuse an inspection of the property, for example.

What You Can Legally Do During the Redemption Period

Michigan homeowners still retain a lot of rights during the redemption period. They can sell the property, for example, through an investor sale, a traditional sale or by assigning redemption rights.

This can be a complicated process, though, that often requires the property to be sold for more than the auction price.

Homeowners can still figure out ways to redeem the home, either by paying off what’s due on the mortgage or refinancing the loan and use the remaining equity as part of the redemption.

They can also negotiate with the purchaser or lender to gain redemption support, extensions or a cash-for-keys agreement.

It’s even possible that homeowners can challenge some of the lender’s conduct leading up to the Sheriff’s Sale, or deficits in notice and posting of the sale.

Buyer Inspection Rights & Your Privacy

Homeowners who are foreclosed on have privacy rights in MIchigan, though they must require the Sheriff’s Sale buyer to inspect the interior of the home and any structures on the property.

The buyer, though, must provide the homeowner with written notice detailing the inspection and give them at least 72 hours notice that they want to do so. They also must coordinate the day and time with the homeowner. 

The buyer also has a right to get information on the property once per month during the redemption period. If they don’t get a response from the homeowner, or if the buyer believes that damage has been done, then they can seek to gain possession of the home early through the courts.

What the Servicer or Investor Can and Cannot Do During Redemption

Servicers or investors are not allowed to force the homeowner to move out early, nor are they allowed to arbitrarily force early eviction — or make threats to do so. As mentioned, they even must give proper notice for property checks and inspections.

If the homeowner believes their rights have been violated and contact from a servicer crosses the line into unlawful pressure, they can file notice with the courts. They’ll likely have to prove the improper behavior happened, through submitting any documentation they have about it.

If You Want to Redeem: How the Math Works

To redeem a property, homeowners must pay the full Sheriff’s Sale price, plus interest and all allowable fees. This must be done in full, though it can be financed through another mortgage or loan, if the homeowner is able to obtain one.

In almost all cases, buyers demand to receive certified funds only. That’s because they want to ensure that the funds being sent to them are indeed there.

The End of Redemption: What Happens When the Clock Runs Out

When the redemption clock has run out in Michigan, homeowners will receive an official summons to appear in court. This is an eviction case, and will only be scheduled and held if the homeowner hasn’t already left the home on their own.

During this hearing, the court will set a date that the Sheriff will go to the home to physically remove the homeowner from the property, if necessary. Any personal property that the homeowner has is theirs to take with them, though if any is left behind after they’re evicted, it becomes the legal possession of the buyer.

After the redemption deadline has passed, it’s possible for homeowners to still negotiate with the buyer, but it’s very rare. This emphasizes how important it is to redeem the property during the period if that’s something you want to do.

How Babi Legal Group Helps Homeowners During Redemption

The foreclosure process can be complicated in Michigan. Understanding your rights during the entire process, including the redemption period, is essential to protect your interests.

If you’re facing foreclosure or are already in the redemption period, it’s important to consult with an experienced foreclosure lawyer like the ones at Babi Legal Group.

Our expert attorneys can interpret the Sheriff’s Deed and calculate your real timeline, stop illegal conduct and help enforce your right to stay in the home. We can negotiate with buyers, investors and lenders to maximize your options, and prepare strategies for selling, redeeming or defending possession of the property.

For a free consultation, please contact us today.

How to Get Unclaimed Money in Michigan: A Simple Guide for Residents

/in /by

Every year, billions of dollars of money goes unclaimed in Michigan. In fact, as of early 2025, there was more than $2 billion worth of unclaimed money in the coffers of the state.

A sizable portion of this total, $189.6 million in fact, is held in more than 17.6 million properties, each worth $50 or less.

This illustrates the fact that residents of Michigan are letting their rightfully-owned money be held by the state each year. Luckily, there is an easy way to get whatever money is yours.

In this article, we’ll explain what unclaimed money in Michigan is, and how you can find out if you have any — and the steps to take to claim it.

What is Unclaimed Money in Michigan?

Unclaimed money is essentially any financial asset that has been abandoned or forgotten. It can include things such as refund checks, insurance payouts, unused gift card balances or old bank accounts.

When these funds go unclaimed, the business that holds them has to legally try to contact the owner to give it to them. There are specific rules that require companies to report and transfer financial assets after a period of inactivity.

Once they’re unable to reach that person for a certain period of time, though, they have to turn the assets over to the state.

At this point, the State of Michigan is responsible for holding onto those financial assets temporarily until the rightful owner comes forward to claim them.

How to Search for Unclaimed Money in Michigan

Like many other states, Michigan’s Department of Treasury has an easy-to-use online system that allows you to search for any unclaimed money that the state may owe to you.

By visiting the state’s site, you can easily search your name to see if the state is holding any unclaimed money on your behalf.

Once you’ve arrived at the site, you only need your full name to conduct a search. Additional details that you provide — such as the city and/or Zip code of the place you reside — can help to narrow down the results, especially if you have a common name.

Keep in mind that if you have lived in multiple locations in Michigan, you may have unclaimed funds associated with more than one address..

The state’s unclaimed property site also allows you to look up funds that might be owed to deceased relatives. Of course, you’ll need to have the proper documentation to move forward and claim them, if you find any.

How to File a Claim for Unclaimed Money

After you perform the search on the state’s website, it will produce any results of unclaimed money that are associated with your name. You’ll first want to verify that the results are actually meant for you, and not someone else who shares your name.

If you believe that the funds are indeed yours, you can move onto the next step in the process. This involves going through a short verification process that will ensure that you are the rightful owner of the unclaimed property.

You may need to provide information such as a Social Security number, driver’s license number or other form of acceptable government ID. Depending on the type of property you are claiming, you may need to provide proof of address or a document that shows your past affiliation with the business that held the funds.

The processing times vary once you’ve completed the verification, but most claims are resolved within a few weeks.

How Michigan Protects Your Unclaimed Money

A common question people have is how does the state of Michigan protect your unclaimed money while they hold it? Per state law, the Department of Treasury has to keep your funds safe until either you or your heirs file a proper claim.

The state also has to hold the unclaimed assets indefinitely. In other words, they never “expire;” you or your rightful heirs can always claim them.

By putting a proper verification process in place, the state ensures that no one else can falsely or fraudulently claim your money.

After you’ve completed the process, you can get online updates about where your claim stands on the state’s website.

Tips to Prevent Your Money from Becoming Unclaimed Again

While it’s great that you can regain possession of your financial assets, it’s best to ensure that the state doesn’t come into possession of them in the first place. By following some simple habits, you can make sure that your financial assets are always in your contract.

First, make sure that your contact information is always up to date. Many unclaimed property cases occur because the business that holds them simply is unable to reach you.

You should regularly check-in on old financial accounts and insurance policies so they don’t become inactive or abandoned.

It’s also a good idea to conduct a quick annual search of the state’s unclaimed funds site so you can catch newly-reported funds quickly.

When You Might Need Legal Help

The state’s unclaimed funds process is simple. In some cases, though, you may need additional support from an experienced Michigan lawyer.

For example, large claims or those that involve estates can get quite complicated. These often require providing legal documents to the state that prove your authority over the unclaimed funds.

An attorney can also help challenge any incorrect denial or clarify ownership issues over the financial assets. By get the property legal support, you’ll be ensuring that your claims are processed quickly and properly.

Final Thoughts: Unclaimed Money in Michigan is Easy to Recover

Millions of cases of unclaimed funds are held by the state of Michigan. Luckily, a simple online search and providing basic documents and information is all that most residents need to reclaim forgotten funds.

Most people will be able to use the state of Michigan’s official search tool to find their unclaimed funds and claim them fast. It’s a completely free tool to use and is simple to understand.

You can speed up the process and ensure proper and prompt delivery of your funds by preparing ahead and gathering the necessary documents. Then, by following small habits, you can ensure your money never gets “lost” again.

If you need assistance with more complicated unclaimed funds cases, enlist the help of the lawyers at Babi Legal Group. We have years of experience helping residents prove their authority over unclaimed funds in Michigan and can help you do the same.

Contact us today to learn more.

What Happens to My EIDL Loan if My Business Closes?

/in /by

During the COVID-19 pandemic, the Small Business Administration (SBA) rolled out an expansion of an existing loan program meant to help small businesses that were suffering financially from a disaster.

Known as Economic Injury Disaster Loan (EIDL) loans, the program provided much-needed financial support to business owners who were struggling as a result of the pandemic. 

While EIDL loans offer favorable terms including low interest rates, high limits and longer repayment periods, they do have to be repaid — unlike the other popular SBA loan program from the time, the Paycheck Protection Program (PPP).

Some small businesses continued to struggle despite taking EIDL loans, and some even had to shut down.

But, closing your business does not automatically erase your EIDL loan. As such, it’s vital to know how the SBA responds in these situations.

Does the SBA Automatically Discharge the Debt?

Borrowers who are still struggling to fully recover from the pandemic need to know how financial hardship factors into the SBA’s collection decisions.

EIDL loans  are not automatically discharged just because a business folds. Like many other types of loans, there is no loan forgiveness associated with this program.

In fact, some borrowers are personally liable for the amount they borrowed, depending on how large the loan was.

If you close your business, the SBA will evaluate several factors to decide whether they want to pursue the outstanding balance on your loan. This includes things such as the amount you borrowed, what collateral you put down (if any) and any personal guarantee you were forced to sign. 

Are You Personally Liable for the EIDL Loan?

It’s very important to understand personal liability because it can determine whether your own personal finances, and not just the business’, are exposed if you can’t repay. 

For EIDL loans, your personal liability likely depends on the total amount of the loan you took. 

For loans of $200,000 or less, the SBA typically didn’t require borrowers to put a personal guarantee on the loan. This might limit your personal liability, depending on your loan agreement.

Larger EIDL loans of more than $200,000 almost always involve personal guarantees and/or collateral. This means that the SBA has the legal right to pursue you personally for repayment of any outstanding balance.

What Happens if You Stop Making EIDL Payments?

Similar to how other loans work, if you miss an EIDL repayment, it can trigger a structured federal collections process. Understanding the details of this process is crucial — before the default occurs — so you can know your rights.

As a government agency, the SBA is required to follow a multi-step process once repayments are missed. This includes sending notices of missed payments to borrowers to formally filing default.

Defaulted SBA loans can be sent to the Treasury Department, which has the power to seize tax refunds and certain federal payments. In other words, they can prevent you from getting a tax refund in order to collect the money that you owe them.

Depending on your loan and whether you put a personal guarantee on it, the government may be able to place a lien on your assets such as vehicles and your home even after your business closes.

Options if You Cannot Pay Your EIDL Loan

So, what happens if you are having trouble repaying your EIDL loan?

Until early in 2025, the SBA offered the Hardship Accommodation Plan (HAP), which allowed borrowers to temporarily reduce their payments. However, this program is no longer available.

Luckily, there are several relief paths available, so understanding them will help you choose the best strategy for your financial situation.

One option could be loan modification. Sometimes, the SBA will adjust the repayment terms, extend your repayment timelines or reduce your monthly obligations based on need.

Borrowers who are facing severe financial hardship might qualify to settle their loan for a reduced lump sum. The SBA will evaluate each application for an offer in compromise (OIC) on an individual basis.

If none of those options are viable for you, it’s possible that filing for bankruptcy could eliminate your personal liability tied to EIDL loans, or allow you to restructure it — depending on what type of bankruptcy you file.

Can EIDL Loans Be Discharged in Bankruptcy?

How EIDL loans are treated in bankruptcy varies from one case to the next. So, understanding what can and cannot be discharged is essential before you file.

Chapter 7 bankruptcy, designed for individuals, may eliminate personal liability on EIDL loans if you meet certain qualifications.

Through Chapter 13 bankruptcy, you can reorganize your debts, including any EIDL-related liabilities, through a repayment plan that you can afford.

Chapter 11 or Subchapter V bankruptcy are made for businesses. They are both reorganization bankruptcies, and could help if your business has any remaining assets or debts tied to your EIDL loan. 

Depending on the type of bankruptcy you file, as well as your overall financial picture, you may have to surrender collateral or negotiate in order for your outstanding loan to be fully discharged.

How Lenders and the SBA Treat Closed Businesses

After a business closes, the SBA has specific expectations for outstanding EIDL loan amounts. Meeting those expectations can help borrowers reduce potential financial consequences.

Once a business has closed, the SBA requires certain documentation, including dissolution records, a list of assets, recent tax returns and other proof that verifies the business is no longer in operation.

Dissolving your LLC, corporation or other business entity the right way can help to prevent unexpected administrative issues and future liabilities. 

By following recommended legal steps, you can minimize the risk of future disputes or collections.

When You Should Speak with a Michigan SBA Loan & Bankruptcy Attorney

If you are facing trouble repaying your EIDL loan, it’s important to consult with a local attorney who can help you navigate the complicated SBA processes and protect your personal finances in the meantime.

Some common signs that you should seek legal help immediately are if you’ve been threatened with a Treasury offset, if aggressive collection efforts have begun, and/or you have overwhelming debt that you can’t control.

Experienced attorneys can negotiate with the Treasury or SBA, securing you better terms, lower settlements and even protection through bankruptcy strategies. 

It’s very important to seek out an attorney who’s familiar with the Michigan court system in addition to the SBA processes, as they can provide more effective guidance that’s tailored to local laws.

Final Thoughts: You Have Options, Even if Your Business Didn’t Survive

Losing a business can be very difficult, but you still have several legal paths that can protect your financial future. From modifications to settlements, there are many different ways you can reduce or eliminate any debt burdens you still have.

It’s important to be proactive and take strategies that will minimize your risk and safeguard your income and personal assets.

At Babi Legal Group, our experienced attorneys can offer expert legal support designed to help Michigan borrowers navigate EIDL challenges with confidence.

To learn more, please contact us today.

Understanding SBA Judgments: From Default to Foreclosure to Asset Seizure

/in /by

The Small Business Administration (SBA) offers a wealth of information, resources and support services to small business owners throughout the country. One popular program that they offer is a loan guarantee, which gives borrowers favorable loan terms and an easier chance to qualify for much-needed financial assistance compared to going directly to private lenders.

While these programs are meant to help small business owners, they are still loans that need to be repaid. If borrowers have trouble repaying the loans, they can face potentially serious consequences.

For instance, defaulting on an SBA loan can lead to foreclosure and seizure of certain assets — both business and personal if the borrower provided a personal guarantee.

Below, we’ll describe the SBA judgment process in further detail.

Introduction to SBA Loans

The SBA offers two main types of loan programs. 

The first is a guarantee program in which the federal agency works with private lenders and insures up to 85% of the loan. This guarantee allows the private lenders to offer small business owners favorable loan terms so they can get the money they need to fund different aspects of their business operations.

The other type of loans the SBA offers is a direct loan program, such as the Economic Injury Disaster Loan (EIDL), which became very popular during the COVID-19 pandemic. These loans were provided directly to borrowers from the SBA, and were meant to provide assistance for small business owners who were located in a declared disaster zone and suffered economic injury as a result of a disaster — in this case, the pandemic.

All SBA loans, regardless of the type, are an essential part of the small business financing process. They help new companies set up and get established, and they also help existing companies grow. 

And, as mentioned, SBA loans can serve as a lifeline to small businesses that are facing significant financial losses and challenges due to life-changing events.

Defaulting on SBA Loans

While SBA loans have different eligibility requirements and loan terms than those obtained directly through private lenders without the federal government’s support, a vast majority of these loans still need to be repaid.

For example, even the EIDL loans had to be repaid by borrowers, which is different from the Paycheck Protection Program (PPP), which offered borrowers the opportunity to convert their loans to forgivable grants if they met certain requirements.

Default on an SBA loan typically occurs after a borrower has missed payments by 120 days. Borrowers who are experiencing operational setbacks, cash flow issues or other financial challenges can pursue options for assistance, including loan restructuring and payment deferments, or even an Offer in Compromise (OIC) to help them improve cash flow and manage payments.

Ultimately, though, if the borrower is unable to meet their repayment obligations and/or come to an agreement on alternative assistance, the lender has the right to sue the borrower to recover the outstanding balance. 

During that process, the SBA can seize any collateral that was used to secure the loan, such as business equipment or inventory. That collateral is then typically sold, with the proceeds being used to repay the outstanding balance.

Borrowers who are dealing with a potential SBA loan default may be able to gain some relief through bankruptcy, which can protect them from litigation and wage garnishment.

All of this goes to show just how important effective management of defaulted SBA loans is. To do it properly, a borrower must be proactive in their communication with the lender, negotiate properly and conduct thorough financial planning.

Foreclosure and Asset Seizure

Foreclosure on an SBA loan could result in the business losing assets, which can be used to repay the outstanding amount of the loan. In many cases, this is business equipment, inventory and real estate the business owns.

In some cases, the SBA may also seize the personal assets of the borrower, such as their cars or home, if the borrower had to sign a personal guarantee to secure the loan or the SBA was able to pursue a lawsuit where it was successful in piercing the corporate veil to bypass the company entity and pursue the shareholder and/or member. 

Asset seizure is a serious thing, and it can have significant negative consequences not just for the business but for the borrower as well. This includes damage to the business’ credit score and reputation, a loss of assets and even damage to a borrower’s personal credit score and loss of assets.

All lenders that participate in these loan programs have to follow strict SBA guidelines when foreclosing on a property or seizing assets, and borrowers have the right to contest these processes.

In addition, borrowers may be able to take advantage of some SBA relief options, including forbearance, loan modifications or settlements, which are designed to help businesses avoid foreclosure and any possible asset seizure.

Role of SBA Loans in Business

SBA loans play a critical role in supporting small businesses throughout the country. They provide them with access to capital they might not be able to access otherwise, which they can use to support their growth and development.

There are many different loan programs the SBA provides, with the 7(a) and 504 loans being two of the most popular. Each program the SBA offers caters to different business goals and needs.

The great part about SBA loans is they can be used for a wide variety of purposes, including starting or expanding a business, refinancing debt, or purchasing inventory and equipment.

In addition to loan programs, the SBA provides support and resources for small businesses, including mentorship programs, training and counseling — both online and in-person.

Small business owners can make informed decisions about what financing options are available to them, and which loan program would best suit their needs, by understanding the role that the SBA plays.

Avoiding Default and Foreclosure

Borrowers who are having trouble meeting their repayment obligations need to prioritize communication with their lender if they want to avoid default and foreclosure. By communicating their needs directly to the lender as early as possible, borrowers might be able to negotiate to receive modified loan terms, including a new repayment schedule or even lower interest rates.

First and foremost, borrowers must understand all the conditions of terms of the loan. This will help them make the best decision possible as well as know what options are available to them.

To ensure the long-term success of the small business, borrowers also need to conduct effective financial planning and cash flow management.

Of course, there are times when financial troubles occur despite detailed and meticulous planning. That’s why the SBA offers resources and support to small business owners that can help them avoid default.

Liquidation and Repayment

If default on an SBA loan were to occur, the SBA and the lender could pursue liquidation, which is the sale of business assets to repay the outstanding loan amount. 

The federal agency could force borrowers to liquidate their assets, in certain circumstances, such as business inventory and/or equipment. Proceeds realized from those sales would then be used to satisfy the loan.

The SBA might offer some relief options, though, such as loan settlements or modifications. It also may be possible to negotiate a modified repayment plan directly with the lender to avoid default and liquidation.

Again, this is why communicating with the lender is so important for borrowers who are having trouble meeting their repayment obligations.

Conclusion and Next Steps

SBA loans are crucial for many small businesses, providing them with access to capital and financing they might otherwise have a hard time obtaining. If a borrower isn’t able to meet their repayment obligations, though, they face significant potential consequences, such as default, foreclosure and asset seizure.

That’s why it’s important to understand all of your options if you’re facing default on an SBA loan, such as bankruptcy. It can be a complicated process, though, which makes consulting with an experienced bankruptcy attorney so crucial.

At Babi Legal Group, our team has more than 15 years a decade of experience with bankruptcy, business, debt collection and debt settlement law, and can provide you with expert advice, guidance and consultation.

To learn more, please contact us today.

What Happens to Business Equipment and Inventory in an SBA Foreclosure?

/in /by

 

The Small Business Administration (SBA) provides various guidance, support and tools to help small businesses throughout the country succeed. The federal agency also offers loan programs with favorable terms to provide much-needed funding to small business owners.

Borrowers must repay these loans, just like other private loans they get, or they could face collection consequences from the SBA. Should a borrower default on their loan, the SBA can pursue foreclosure and attempt to recoup their lost money by taking collateral from the business.

Below, we’ll discuss what happens to business equipment and inventory in an SBA foreclosure.

Introduction to SBA Foreclosure

The SBA foreclosure process is a structured series of steps that lenders have to follow if a borrower were to default on a loan that is backed by the SBA. The first step of the process is the lender sending a formal default letter to the borrower that outlines the payments that have been missed and the potential consequences if they don’t resolve the debt.

If the borrower still isn’t able to pay back the outstanding debt, then the lender can pursue other options, such as the seizure and sale of certain  assets that were pledged as collateral to secure the loan. This could include inventory, business equipment and other types of property.

Some lenders may seek to have a receiver appointed to manage the assets and/or liquidate them.

The goal of the entire SBA foreclosure process is to ensure that the outstanding debt is satisfied reasonably, which includes balancing the interests of the borrower and the lender. 

The SBA guides the foreclosure process carefully, which ensures that all parties have the opportunities to address the outstanding debt before any assets are sold.

Understanding an SBA Loan Default, Foreclosure and Federal Tax Lien

When a borrower defaults on a loan that’s backed by the SBA, the private lender that gave the money — typically a bank or other financial institution — can seize any assets that were used as collateral. This inventory, business equipment or other property helps to satisfy the obligations that the borrower can’t meet. 

As mentioned, the process is very structured to ensure fairness to all parties involved, and it typically begins with a formal default notice. Only after the borrower has been given a chance to satisfy the outstanding debt can the lender move on to seize secured assets to recover their lost money.

From the borrower’s perspective, defaulting on a loan can have severe consequences. It can lead to the business and borrower’s credit dropping considerably, and could result in business and personal assets being seized, too. 

Even after assets are seized and sold, the borrower still may be legally liable for any unpaid debt that remains, as well as litigation and legal fees. 

Identifying Assets and Liens in an SBA Foreclosure

In an SBA foreclosure, the most common forms of assets that are at risk are business equipment and inventory. That being said, cash and accounts receivable could also be subject to seizure and liens. 

Financial institutions and other businesses can even establish liens on property, and vehicles are often included as collateral, meaning they can be seized and sold during foreclosure sales. This is why it’s vital for borrowers to understand exactly what assets are listed as collateral on their loan. 

A federal lien serves as an official claim made by the government for unpaid taxes, in most cases. If one is present, it can complicate the SBA foreclosure process even further.

In such a case, courts might get involved to enforce liens and determine the priority of claims, as some liens take priority over other outstanding debt in the event of a business sale.

Another type of lien is a mortgage lien, which is held by a lender or financial institute to secure their interest in a property that’s being financed. Should the borrower not pay their taxes, for example, the IRS can issue a federal tax lien.

The official foreclosure action would then determine which liens have priority so that process from the sale of the property can be distributed properly.

How the Financial Institution Handles the Foreclosure Process

In any foreclosure process, the bank or financial institution serves as the primary point of contact for the borrower — even if they have a loan that is backed by a federal government agency such as the SBA. 

The lender is the one that must initiate the foreclosure process once a payment default occurs, though they must follow the specific rules and procedures for foreclosure.

Once a notice of default has been issued, the lender can begin the process of seizing possession of any collateral should the borrower not be able to meet their payment obligations. The lender will also arrange for the sale of these assets, with the proceeds being applied to the outstanding debt.

Superior liens must be paid off first after the sale of assets. This means if there are any outstanding federal debts or secured debts, they must be paid off first before the proceeds can be applied to the balance of the SBA loan. 

Key Legal and Financial Considerations in an SBA Foreclosure

If you are having trouble repaying your SBA loan, there are ways to avoid foreclosure and the impact that it can have on your credit, personal finances and business outlook. 

First, make sure that you communicate openly with your lender. Sometimes, the lender will work with you to come up with an alternative plan or loan modification to address the debt. 

Even the IRS may offer you options for resolving tax liens, including settlements or payment plans. If you’re facing a complex tax issue, it’s best to seek assistance from a legal tax professional. 

It’s also advisable for borrowers to seek legal advice during foreclosure, as the potential for litigation is high. An experienced attorney can help you understand what your rights are, as well as the legal provisions of your loan.

For instance, you have a right to contest your seized property in court before it is officially taken and sold.

In some cases, you may be able to address outstanding debt and defaulted loans through bankruptcy. As part of this process, the SBA might purchase the loan from the lender, and your loan can be transferred to liquidation status before further legal actions are taken.

This can be quite a complex process, though, so it’s best to consult with an experienced bankruptcy attorney.

Protect Your Rights in SBA Foreclosure with an Experienced Attorney

SBA foreclosure can have significant negative consequences to small business owners. Not only can their business assets be at risk, but their personal finances and assets could also be subject to seizure and sale.

If you’re having trouble repaying your SBA loan and are facing default, it’s best to consult with an experienced attorney who can help protect your rights.

The legal team at Babi Legal Group has more than 150 years of experience in business, debt settlement, debt collection and bankruptcy law. We can advise you on the best options for you and help you navigate the complex SBA foreclosure process.

To learn more, please contact us today.

Using Chapter 7 Bankruptcy to Stop SBA EIDL Collections Effectively

/in /by

 

The Small Business Administration (SBA) provides Economic Injury Disaster Loans (EIDL) as a way to help support small businesses affected by disasters. While this loan program has been around for a while, it soared in popularity during the COVID-19 pandemic, when the federal government essentially made it available to all small businesses in the country.

These loans offer small businesses financial relief to help them recover from economic losses suffered as a result of disasters. To be eligible for EIDL loans, small businesses must be located in a declared disaster zone and also prove they suffered economic injury as a result of that disaster.

Small businesses are able to use the funds from the loans to cover operating costs, including utilities, rent and payroll.

Unlike some other popular SBA loan programs, EIDL loans must be repaid in full, though they often come with favorable loan terms. If you can’t repay the loan, you are at risk of professional and even personal liability.

In this article, we’ll discuss what happens in this case, as well as how to use Chapter 7 bankruptcy to stop SBA EIDL collections effectively.

Personal Liability and Guarantees

Whether a borrower is personally liable for EIDL loans depends on how much money they borrowed. 

Loans that were less than $25,000 are essentially unsecured loans, as they don’t require collateral or a personal guarantee. Loans that are between $25,000 and $199,999 typically require borrowers to put up collateral to secure the loan.

For EIDL loans that are $200,000 or more, the SBA typically requires collateral as well as a personal guarantee from any person who owns at least 20% of the business. What this personal guarantee does is put your personal assets and finances at risk should you fail to repay the loan, even if the business were to close.

As such, a personal guarantee increases a borrower’s responsibility for the SBA loan repayment, and it can even lead to collection efforts against your personal assets.

Before you can take action to protect yourself from collection, it’s important to understand what your personal liability is. This is an essential first step before filing for bankruptcy so you and your advisors can determine what the best course of action might be.

Secured EIDL Loans and Blanket Liens

As mentioned, any EIDL loan of $25,000 or more typically requires collateral to secure the loan. This can be any physical asset such as property, equipment or some other business asset that has value.

If a borrower is unable to repay an EIDL loan, the SBA has the option of issuing what’s known as a blanket lien. This gives the federal agency a security interest in all of the borrower’s assets, and could allow them to seize assets and sell them to repay the outstanding loan amount.

These blanket liens give lenders maximum protection against the money they lend, but don’t offer much protection at all to borrowers, who could be at risk of losing all of their pledged assets should they default on the loan.

This is why all borrowers need to carefully review the security agreement and fully understand all the terms of the loan, including blanket liens, before signing off on a loan.

Collection Efforts and Bankruptcy

Just like private lenders, the SBA has the power to pursue collection efforts against any borrowers who default on EIDL loans. This includes a potential foreclosure and seizure of business and potentially personal assets.

Borrowers who find themselves in this situation can file for Chapter 7 or Chapter 13 bankruptcy, though. This can stop collection efforts by the SBA, including wage garnishments and lawsuits, through what’s known as the automatic stay.

This procedural move gives borrowers temporary protection so that they can reorganize and/or liquidate their assets without creditors interfering in the process. 

Before taking any action, it’s best to consult with an experienced bankruptcy attorney to determine the best path forward for your specific circumstances, as bankruptcy takes more than a one-size-fits-all approach.

Dischargeability of Business Loans

Many SBA loans are dischargeable in bankruptcy, and that includes EIDL loans. That being said, there are exceptions that exist that you need to be aware of.

For instance, embezzlementnegligence, misrepresentation and fraud are all things that could stop an EIDL loan from being discharged. In rare cases, the SBA may also challenge the discharge of a loan.

To determine whether your SBA loan is dischargeable through bankruptcy, you should fully review all loan documents and terms. Since this can be challenging for non-experts, it’s always advisable to consult with a seasoned bankruptcy attorney, which will ensure you get the best outcome possible.

Alternatives to Bankruptcy for EIDL Loans

Of course, bankruptcy isn’t the only option if you are having trouble repaying your SBA loan. Some alternatives do exist, such as negotiating directly with the SBA or considering debt restructuring.

Another possible option is what’s known as an offer in compromise (OIC), which might be available if you’re unable to repay the full amount of the loan, however, this is not yet an option for EIDL loans issued by the SBA. 

Before determining what the best option for you is, it’s best to review your full financial picture and weigh all of your options. Consulting with a bankruptcy attorney and possibly even a financial advisor is a good idea, too, so you can get some outside, unbiased, expert advice on the matter.

Conclusion and Next Steps for SBA Loans

If you’re struggling with SBA loan debt, you need to investigate your options and seek professional advice so you can protect your personal assets as much as possible. Bankruptcy could provide a fresh start for you, but you need to carefully consider the consequences of doing so and any possible alternatives.

Consulting with an experienced and reputable bankruptcy attorney can help you navigate the complex bankruptcy process and ensure the best possible outcome for your specific circumstance.

At Babi Legal Group, we have more than 15 yearsa decade of experience in business, bankruptcy, debt collection and debt settlement law. We can review your case and help you get the outcome that is best for you, your family and your business.

To learn more, please contact us today.

The SBA is Suing Me After My Business Filed for Bankruptcy: What Do I Do?

/in /by

 

The Small Business Administration (SBA) offers advice, counseling, support and even special loan programs to help small businesses across the country succeed. These loans are designed to provide financial help to small businesses that want to purchase equipment, real estate and fund other needs, but when borrowers are unable to repay their loans, the SBA has the authority to take action.

In fact, the SBA can sue businesses and any personal guarantors that default on SBA-backed loans, and that can present a complex and challenging process for small business owners. Understanding the process of an SBA lawsuit is critical for businesses to navigate and resolve any issues effectively.

Below, we’ll discuss what you should do if the SBA is suing you after your business filed for bankruptcy.

What Are SBA Loans?

The SBA provides loans and guarantees on loans so that small businesses can obtain favorable terms on financing. These loans can be used for the purposes stated above and also for the acquisition or construction of buildings, or to purchase fixtures, machinery and other physical assets that are essential to operations. 

The lending process can vary depending on the type of loan program, but it typically involves experienced lenders and authorized offices that provide funds to small business owners. 

While many exceptions are made with SBA loans to provide these favorable terms, they still require careful management to avoid default and a possible SBA lawsuit.

Understanding Bankruptcy and Debt

Small businesses that are struggling  with debt may receive some financial relief through bankruptcy, but it can also trigger an SBA lawsuit within the bankruptcy case, or against the personal guarantors as the bankruptcy would not protect any personal guarantor.  In many instances, when the business files bankruptcy, a personal bankruptcy may also need to be filed to obtain bankruptcy protection. This is why it’s so important that borrowers educate themselves on their debt obligations and explore all options for managing their debt, including restructuring or refinancing.

To avoid complications and ensure compliance, you need to do everything in the correct order. The SBA also provides support and resources for small businesses struggling to make repayments, including education on debt management and financing. 

Personal Liability and SBA Guarantees

Some SBA loans come with personal liability and guarantees. In fact, most loans through the agency require small business owners to provide a personal guarantee that is secured by real assets.

This essentially means if the business is unable to repay its loan, you will could be personally responsible for covering the outstanding balance. In this case, your personal finances and assets could be impacted significantly.

The SBA is in the business of helping small businesses. The loan programs they offer are essentially guarantees to the private lenders who offer them, as they repay a percentage of any uncollectable debt should a borrower default.

This doesn’t mean that you’re off the hook, though, if you can’t afford to repay an SBA-backed loan.  However, it may present an opportunity to seek a settlement with the lender and the SBA collectively to obtain relief, through what is known as an “Offer in Compromise”.

SBA Lending Practices

The SBA has a network of authorized lenders such as credit unions, traditional banks and other financial institutions. They work with these private lenders to offer small business owners favorable loan terms in exchange for a guarantee on a portion of the loan from the federal government. 

The SBA also has a keen focus on supporting small businesses in underserved markets, such as women-owned and minority-owned businesses.

Understanding how the SBA’s lending process works and what the requirements are is essential to navigate everything successfully.

Protecting Personal Assets

As you can see, protecting your personal assets should be a top priority when you take out a loan for your business. Perhaps the most effective way to do so is by keeping your business and personal finances separate.

This includes establishing a formal business entity, which can provide a layer of protection for your personal finances and assets.  However, the SBA may still require you to pledge real or personal assets as collateral to obtain the loan, subjecting them to seizure or foreclosure upon default. 

It’s also a good idea to work with a skilled attorneyfinancial advisor to help you navigate the lending process, and to ensure you’re doing all you can to safeguard your assets. These experienced professionals can help guide you through the entire process, providing you with advice on the best ways to minimize personal risk. 

Being proactive in this way can help you access the funds you need for your business while reducing the likelihood that your personal assets will be at risk should you face financial challenges.

Timeline and Process of SBA Collection Actions

Before you take out an SBA loan, it’s important to understand the collection process. As with any loan, you are required to make timely payments according to the terms of the loan.

If you don’t, the lender will likely first notify you of default and outline the steps you need to take to bring the loan current. This serves as a way for you to address issues before they take further action.

If at this point you can’t resolve the default, then the private lender can file a claim with the SBA to recover the portion of the loan the agency guaranteed. After the SBA determines what amount, if any, they repay the private lender, the agency can then pursue additional collection actions against you should the debt remain unpaid.

This includes referring you to a collection agency or filing a lawsuit. Every step of the process involves specific deadlines and actions you must take, so it’s essential that you work with your lender and respond promptly to explore all options. 

Responding to the Lawsuit

If the Lender and/or the SBA files a lawsuit against you, you should carefully consider every aspect of it and engage in strategic planning to minimize any potential damages. Seek legal counsel with professionals experienced in handling SBA lawsuits so you can achieve the best possible outcome. 

They can help you understand what the SBA’s claims are, while also reviewing loan documents and preparing an effective defense strategy. 

Small Business Considerations

If you want to ensure long-term success of your business, and protect your personal assets, you must consider the potential impact of an SBA lawsuit on your business finances, operations and reputation. The lawsuit can affect your ability to secure new funding, access credit and even attract investors.

This is why it’s so important to communicate with your lender, the SBA and all other stakeholders to resolve the issue. You can also explore alternative financing options to support your business operations during the lawsuit. 

Exploring Options for Resolving Debt

An SBA lawsuit doesn’t mean you can’t explore other options for resolving the debt you owe, including coming to a settlement, negotiating with the agency or doing mediation. In fact, the agency may be willing to work with you to provide temporary relief or even restructure the loan.

Part of this resolution process could involve providing documentation and financial information to support your case, so make sure you have that information prepared.

Alternatives to Litigation

In many cases, lenders are willing to work with borrowers to find solutions to outstanding debt so everyone can avoid the courtroom. For example, you might be able to negotiate a new payment plan or request a loan modification so your payments are more manageable.

You might even be able to apply for an official SBA loan restructuring to reduce the overall amount of your outstanding debt or to provide you with temporary financial relief. 

An experienced debt collection and settlement attorney or financial advisor can help you understand all the options you have. Many can even work directly with your lender to develop a plan that fits your needs and avoids the expense and stress associated with litigation.

It’s important to take action early and explore alternatives to preserve your credit, grow your company and protect your business and personal assets.

Next Steps and Conclusion

If you’re facing an SBA lawsuit, it’s important to take immediate action to respond and explore all options for resolving the debt. While the SBA lawsuit process can be challenging and complex, you can navigate through issues effectively with the help of experienced legal counsel.

At Babi Legal Group, our attorneys have over 15 years of combined experience in business, debt collection and debt settlement law. We can provide you with expert advice on navigating an SBA lawsuit, protecting your business and personal assets through the process.

For more information, contact us today.

Facing an SBA Loan Default: How a Lawyer Can Help You Avoid Property Seizure

/in /by

The Small Business Administration (SBA) provides guidance and support to small businesses throughout the country in a number of ways. In addition to having advisers on hand to offer expert advice to small business owners, the federal agency also sponsors many different loan programs.

One of the biggest advantages of SBA loans is that they offer competitive interest rates and longer repayment terms than other types of loans available to small business owners.

These loans are originated and guaranteed by the federal government, with the SBA insuring as much as 85% of the loan balance through either local private lender partners or through direct SBA loans such as the Economic Injury Disaster Loan (EIDL).

Just like other loans, though, there are terms borrowers must abide by. This makes understanding all the conditions and terms of SBA loans crucial for borrowers so they can avoid default and potential tax debt.

Yet, ongoing economic changes could make it difficult for small business owners to repay their SBA loan debt, which could lead to potential default.

We’ll discuss this topic in more detail below, and outline how a lawyer can help small business owners avoid property seizure if they’re having trouble repaying their SBA loan.

Consequences of Default

Default happens whenever a borrower isn’t able to meet their repayment obligations on an SBA loan they took. If this were to happen, the small business owner could face severe consequences.

Once SBA loan default occurs, lenders can start debt collection efforts. This includes seizing any collateral that was used to secure the loan in the first place, such as equipment or real estate.

Generally speaking, the collect process will follow specific outlined protocols to recover the proceeds of the loan, as the lenders try to recoup any losses they might incur from the SBA loan not being paid back.

If you were to ignore a demand letter that the SBA sends during the default process, it can lead to your account being transferred to the U.S. Department of Treasury, which could result in a large potential tax liability and additional collection fees.

Understanding SBA Loan Default

So, what constitutes SBA loan default? In essence, borrowers who don’t abide by the terms of their loan or a modified loan, including missing payments repeatedly, are considered to be delinquent, which could eventually result in them being officially labeled as in default status.

Before you are actually transferred into default status, your loan will be considered delinquent once you miss payments. Your lender and/or the SBA will contact you to demand that you make repayments according to the terms of your loan.

In most cases, default of an SBA loan will occur after about three or four months of missed payments without any contact between you and the lender. During that time, the SBA will usually try to collect the outstanding debt via various means.

While the SBA guarantee that is placed on these loans will protect private lender partners from absorbing the full loss of defaulted SBA loans, borrowers still face significant financial penalties and hardship should they default.

Tax Implications

There are serious potential tax implications to defaulting on an SBA loan. This includes accumulating tax liability and debt for the business owners themselves.

For instance, if you default on an SBA loan, the IRS has the authority to withhold any tax refunds or government benefits to collect on the debt. They may also take direct legal action such as filing a lawsuit to recover the outstanding SBA loan debt.

That’s why it’s so important for business owners to consider this potential tax liability, as well as their own personal income tax situation, when faced with SBA loan default. Doing so will help you navigate what can be a very complicated process so you can avoid even deeper financial hardship.

Compromise Program

Depending on your specific situation, there may be options available to you to avoid default if you’re having trouble repaying your SBA loan. One such potential option is called the offers in compromise program, which can provide assistance to financially distressed taxpayers who can pay a reasonable portion of their outstanding tax debt.

This program may provide an alternative to bankruptcy and can help small business owners resolve outstanding tax debt so they can avoid more financial hardship.

The SBA typically only considers these offers in compromise (OIC) if borrowers meet certain qualifying criteria. Some states also have additional criteria that they will weigh when making a determination.

For example, in New York, the state will consider whether accepting an offer in compromise will be in the best interest of both the state and its taxpayers. In other words, even if you do meet the other criteria, your offer may not be accepted.

Offer in Compromise

The OIC program allows certain small business owners to settle their outstanding SBA loan debt for less than the total amount they owe. It requires the borrower to provide both proof of the financial hardship they are facing as well as their inability to repay the loan within a reasonable period of time.

One requirement of the OIC is that the business must close as well as go through asset liquidation to reduce their outstanding debt.

This is obviously a serious step to take, which is why having an experienced business attorney on your side is so beneficial. They can assist you with drafting and submitting an OIC to the SBA, and helping you gather all required supporting documentation including detailed financial information.

The OIC process can be very complex, but it is a potential solution if you’re facing significant financial challenges and potential default on an SBA loan.

SBA Loans and Default Prevention

As you can see, preventing default on an SBA loan is critical if you want your small business to survive. This is why taking early action is so crucial in helping you manage and/or avoid missed repayments.

There are many strategies available that can help you address repayment difficulties you may be having before a default would occur. This includes re-evaluating your business finances and reaching out directly to your lender to investigate other options.

By proactively managing the repayments of your SBA loan, you can protect your business credit. Communication with your lender is a key aspect of this process, as it can help you avoid defaulting and taking on additional tax debt.

Small business owners who want to prevent SBA loan default should explore any alternative repayment options and seek professional assistance from an experienced bankruptcy and/or financial adviser.

Conclusion and Next Steps

Facing potential SBA loan default can be very challenging for small business owners. Understanding the consequences and options of default is crucial to navigate the complex process successfully.

If you’re facing default, consider seeking professional assistance, such as the experienced lawyers at Babi Legal Group, to help you resolve your SBA loan debt and avoid property seizure.

The compromise program and an OIC are potential solutions, but you need to investigate them further with an expert. By understanding what options you might have and taking proactive steps, you can work to resolve SBA loan debt and avoid further financial challenges.

The attorneys at Babi Legal Group have more than 150 years of experience in business, debt collection and debt settlement law, and can help guide you when trying to avoid SBA loan default. 

For more information, contact us today.

Understanding the SBA Hardship Accommodation Plan

/in /by

 

During the COVID-19 pandemic, the federal government created new programs and expanded some already in existence to help people recover from economic loss they suffered. Small business owners were a big focus of these efforts, with two very popular loan programs being offered to them.

One was the very popular Paycheck Protection Program (PPP), which offered loans that could be converted into forgivable grants if the borrower used the funds for certain purposes and could prove they did so.

The other was the Economic Injury Disaster Loan (EIDL) program, which, while already in existence, was expanded considerably. Unlike the PPP program, these loans had to be repaid in full.

Borrowers who were having trouble repaying the loans did at one point have the opportunity to take advantage of the Hardship Accommodation Plan (HAP), though that is no longer available.

Below, we’ll discuss the HAP in more depth and what options borrowers have if they can’t repay their EIDL loan.

Introduction to Economic Injury Disaster Loans

The EIDL program is offered through the Small Business Administration (SBA). While it was available prior to the pandemic, it got expanded considerably during it. 

The expansion was done to essentially declare the entire country in a disaster zone, which by default made all businesses eligible to apply from a location perspective. That’s because in order to be eligible for an EIDL loan, the business had to be in a declared disaster zone, and suffered substantial economic injury as a result of that disaster.

The loan program is meant to help nonprofit organizations, small agricultural cooperatives and small businesses receive financial support if they suffered substantial economic injury due to the pandemic.

These loans provided a vital lifeline to small business owners who were affected by the COVID-19 pandemic, offering them long repayment terms and low interest rates. 

The SBA integrated various other programs to help borrowers manage their EIDL loan debt, including the HAP.

Eligibility and Application

To be eligible to receive assistance under HAP, borrowers had to have an existing EIDL loan and be experiencing temporary financial hardship still. What the plan did was allow borrowers to either defer payments or make reduced payments for a specific temporary period, which was meant to help them manage their debt while they were still trying to recover.

Business owners who were interested in applying to the HAP could either apply online through the SBA’s portal or contact the COVID EIDL Servicing Center directly.

The SBA made approval decisions on a case-by-case basis, after borrowers provided documentation that proved they were still experiencing financial hardship.  

COVID-19 EIDL Program Overview

During the COVID-19 pandemic, the EIDL program was expanded considerably to try to help small businesses that were struggling. In addition to the low-interest loans with long repayment periods, the program also offered other forms of assistance including some grants.

When the program was expanded, the SBA provided guidance on all the details of the program, including typical repayment terms, application procedures and eligibility criteria, among other things.

All of this information was available directly from an SBA center, the SBA’s website or one of the agency’s Resource Partners.

Managing Economic Injury Disaster Loan Debt

Even with the added financial support, many small business owners still had trouble recovering from the economic damage the pandemic caused. Part of those challenges was managing this newfound EIDL loan debt, especially as they were trying to adjust business operations or account for lower-than-expected revenues.

The SBA did offer many resources for borrowers in this situation, including mentoring and counseling about managing debt. 

As mentioned, the HAP was also available to many borrowers while the pandemic was still going on, to help provide them more temporary financial relief. However, that program expired in early 2025, meaning borrowers had to look elsewhere for relief.

Some borrowers may still have other options including debt settlement,  loan modifications and repayment plans, but there isn’t a one-size-fits-all solution to the issue.

That’s why it’s essential for small business owners to understand the full terms of their EIDL loans — including personal guarantees, repayment terms and interest rates — so they can know what they’re responsible for, what would happen if they default and what options might be available to them.

EIDL Assistance Options

While the HAP program is no longer available, the SBA still provides guidance and support for small business owners who are struggling to repay their EIDL loan. Many of the agency’s Resource Partners can provide mentoring and financial counseling.

The SBA also has an online portal that provides an easy and convenient way to manage EIDL loans, make payments and request various servicing actions. The COVID EIDL Servicing Center is also available for any borrowers who would like more direct assistance.

COVID EIDL Repayment and Forgiveness

The PPP was extremely popular because borrowers had the opportunity to convert the money they borrowed into a forgivable grant, as long as they used the proceeds for specific operational expenses. Unfortunately, this is not the case for EIDL loans.

These loans had to be repaid in full, including all related fees and interest rates. Borrowers who are having trouble repaying should investigate their options so they can avoid defaulting on the loan or having the loan charged-off.

Conclusion and Next Steps for COVID-19 Economic Injury Disaster Relief

The SBA’s Hardship Accommodation Plan was a great program that provided EIDL loan borrowers with a way to receive temporary financial relief if they were having trouble repaying their loan. Unfortunately, that program is no longer available, as it expired in early 2025.

Small business owners who are still having trouble repaying their EIDL loan should contact the SBA or loan servicer to find out whether they have any options to receive financial relief. This could include changing repayment terms or modifying the loan in a way that provides relief.

You may also want to consult with an experienced bankruptcy attorney if you have exhausted all of your options. The expert attorneys at Babi Legal Group have more than 150 years of experience in bankruptcy, business, debt settlement and debt collection law, and can provide you with the guidance you need to manage your EIDL loan debt if you are having trouble repaying.

For more information, contact us today.