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SBA Loan Default: What Happens When You Default & What You Can Do About It

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    Andres A Yaya

    I am getting refinance thru VA (I am veteran), but they want to settle a SBA loan orig 12,500 in 2009.
    I filed Bankruptcy in 2013 October Discharged. SBA included and did not protest. The issue is now with
    Treasury. The Treasury never contacted me on claim now or even since I bought my House with FHA in
    2015 May. Now they let me know of money due. I will call Treasury Dept Thurs 7/18 and ask If they accept 12,500 orig balance or balnace now ( from your experience is it orig balance or recent with interest). I can pay 70/80% of balance 12,500 or recent which is 10K plus 3.5 K or 13500 payment in one shot minus % from 2009 or 2013 BK date to present. Will they accept my offer? Can I do offer in compromise? Will this get me off the record to continue my VA loan, which is 3.20% better than 3.75% now, delete PMI , reduce my monthly from 1,500 to 1,300 (I will get Cash back from equity 10 K and payments 1300 still at 3.2%….. House went up 50K but I didnt want cash, only this time due to SBA default). Will the Tresaury let me slide …. If I pay 12,500 in one shot instead of 3 yrs (also because I want to get good Loan NOW}. Will they forgive the years from 2009 or 2013 until Now? I was ignorant about the debt because I was told BK took care of that, Please respond

      This comment refers to an earlier version of this post and may be outdated.

      Jessica Dinsmore

      Hi Andres,

      This is really outside of our expertise, unfortunately, and we wouldn’t want to give you advice we aren’t too sure about. I’d suggest contacting legal aid services in your area and consulting with a lawyer that specializes in this area of law. We are so sorry we couldn’t help, and we wish you all the best!

        Jason Milleisen

        Hi Andres,

        I know this comment is a few months old, but wanted to chime in just in case someone else has a similar question.

        In some cases, I’ve had clients who either filed for personal chapter 7 bankruptcy OR have settled their SBA debt, yet they still get a letter from the Treasury. In my experience, there are a few different explanations:

        1) The letter is addressed to the business entity, NOT you personally. If the business is closed and dissolved, there isn’t much that the Treasury/SBA will do to collect. If you were discharged from chapter 7 (personal) BK, they can’t come after your personal assets.

        2) It’s a mistake. I’ve have a fair number of clients get letters from SBA even after we settled. In each case, we send a copy of the settlement agreement and it got resolved.

        If your business filed for a BK, and you are still personally liable, settling with the Treasury is typically difficult. At best I’ve seen settlements of 50% (years ago) but more recently they want 70-80% of the entire balance (including their 28% fee). Payments plans are possible, but typically require that you repay the entire debt in full over a short period of time like 3 years.

        I hope this helps!

          Jason Milleisen

          Hi! I just wanted to clear up an error in your article. The 60-day letter that comes from the SBA is your LAST chance to settle with the SBA or the lender. This article stated that the 60 day letter states “that your case has been transferred to the Treasury Department”. This is not the case. The 60-day letter gives you 60 days to contact the SBA (it’s a department known as Treasury Offset, so it can be confusing), and if they don’t hear from you at that point, then it goes to Treasury.

          And to be clear, settling with the Treasury is VERY difficult, and almost always MUCH more expensive than if you settle directly with the lender or the SBA. So if you get a 60-day letter and want to settle, that is your last chance to work out reasonable settlement terms (let’s say in the 5% to 40% range). Otherwise, the Treasury, who usually offers the same terms to everyone, will want 70% to 80% of the loan balance. And that’s after they hit you with a 28% penalty, which means they REALLY are going to seek the entire balance from you. And they always require lump sums. If you want to a payment plan with the Treasury, they will require you to pay it off in full over an extremely short time from of 2-3 years.

          I used to work for the largest SBA lender in the USA, and I now work exclusively with borrowers who can’t afford their SBA loans. I can tell you definitively that if you want to settle your SBA debt, DO NOT WAIT until the file goes to Treasury. I’ve had borrowers tell me that their attorney or CPA (who knows nothing about SBA) told them to wait it out, and eventually the SBA will settle for pennies on the dollar. This may work for other types of creditors, but not the SBA.

            This comment refers to an earlier version of this post and may be outdated.

            Jessica Dinsmore

            Hi Jason,

            Thank you so much for bringing this to our attention! We will be updating the review to reflect this new information. Stay tuned!

              This comment refers to an earlier version of this post and may be outdated.

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