When it comes to collecting from guarantors of business loans, the SBA has keen eyes and talons.
I discovered this when a client asked me for advice regarding a company that had failed 12 years prior.
However, the SBA had never sued him or placed a lien on his property.
However, he claimed that each time he changed jobs, the SBA simply showed up and garnished his wages.
If things continue as they are, his exposure to the SBA loan guarantee will last well past the next ten years.
There is a six-year statute of limitations on lawsuits to recover unpaid US debts, according to the United States Code 28 USC 2415.
Therefore, the SBA has six years from the date of the last payment to sue a guarantor for a money judgment. A judgment comes with a plethora of legal collection tools, such as liens and levies.
But it turns out that the federal government can use strong collection measures that ordinarily call for judgment without a judgment.
The SBA has the same legal authority as the IRS to deduct wages without ever appearing in court.
13 C. F. R. 140. 11 specifies the maximum amount of each paycheck that may be garnished as well as the process for objecting to a garnishment.
Unsettlingly, the rule states that the federal government has the right to garnish wages until the debt is paid in full or a settlement is reached. So, at each new job, the SBA kept coming up for my client.
Offset into retirement years
Retirement isn’t a reprieve from SBA debt, either.
The government retains the right to offset any money it may owe you, as in tax refunds or Social Security benefits, to pay the debt. 31 USC 3716.
Thus, the right to garnish wages or offset mutual debts appears to have no time limit, but the filing of a lawsuit that could result in a lien or the right to levy your assets is barred by the passage of time. A guarantor may continue to make payments on a debt owed by a long-gone company until death.
SBA debts dischargeable in bankruptcy
Any unsecured debt owed to the SBA is entirely dischargeable in bankruptcy if the borrower and the SBA are unable to come to an agreement regarding payment.
Secured debt owed to the SBA is only secured in a bankruptcy case to the extent that there is equity in the asset after liens senior to the SBA are paid. Thus in a Chapter 13, an SBA lien can be crammed down to the value of the collateral.
SBA debts are typically secured by the assets of the business for which the loan was obtained, so they are rarely protected by the provisions of Chapter 13 that forbid modification or bifurcation of debts secured only by the debtor’s home.
FAQ
How long can SBA collect a debt?
Judgment debts are still collectible after ten years, but non-judgment debts aren’t. Before any offset deduction is made, SBA will give you at least 30 days’ notice of its decision.
Can you go to jail for defaulting on an SBA loan?
SBA loan fraud is a serious issue. Depending on the severity of the charge, people accused of loan fraud could receive up to 30 years in federal prison. Even though times are hard, it’s crucial to consider why a loan is necessary and whether there are any other ways to get the money needed.
What happens if you dont pay back a SBA loan?
Failure to repay the SBA Loan First, the lender will demand payment from the business for the remaining loan balance. However, the lender will foreclose on the business’s pledged collateral if the borrower is unable to make the full payment. Your business assets may not have much value.
Can you go to jail for not paying back SBA loan?
Federal prison time and fines that can reach six figures are among the severe punishments that can result from a conviction for federal loan fraud.