Ramifications of defaulting on a federal loan

[JackBondLove]

As I understand it, due to my situation of owing the feds for a defaulted loan, it looks like that for 10 years, if I were to have any overpayment of income tax, any refund or carryover to the next year would be subject to seizure. Since I will be getting the home buyer's tax credit, it looks like I will need to have enough of a tax liability such that there would be no overpayment. This is fine, as I am able to take money from a traditional IRA, pay the penalty and tax (with the tax credit.) I probably would be taking some money out over the next few years in any case, so it will not matter.

Also AIUI, this will be in place for 10 years, so it looks like I will not be able to get a tax refund until tax year 2020. And if I were old enough to be getting Social Security by then, evidently that could be garnisheed as well. It also seems to mean that I will not be able to get a FHA loan until that time as well.

Has anyone dealt with this situation?

[HHM]

That is all well and good...but what sort of loan are we talking about? The mere fact that a loan is from the government doesn't make it non-dischargeable.

[JackBondLove]

SBA disaster loan, not liened to any property.

[AngelinaCatHub]

SBA disaster loan, not liened to any property.

Not a CPA, but that is not a student loan, it is not a tax bill. I would wager it would be discharged. 'Hub


EDIT: Do you have any copies of the original loan? Small print and all that?

[AngelinaCatHub]

The Small Business Administration's (SBA) claim in a bankruptcy case is just as dischargeable as other business debts. The issue is whether, or to what extent, is the loan secured by your assets.

Many SBA loans are secured by the assets of the business and, often, by the home of the borrower.

Bankruptcy does not eliminate liens voluntarily granted on the debtor's assets. Any part of the loan balance that exceeds the value of the collateral can be discharged.

http://bankruptcy.lawyers.com/ask-a-lawyer/Can-an-SBA-Loan-Be-DischargedU-7415.html

[JackBondLove]

What about this?

http://forum.freeadvice.com/starting-operating-business-3/what-happens-if-you-default-sba-loan-180074.html

There is a paragraph from the Debt Collection Act of 1982 and Deficit Reduction Act of 1984. It states, "These laws require SBA to aggressively collect any loan payments which become delinquent. SBA must obtain your taxpayer identification number when you apply for a loan. If you receive a loan, and do not make payments as they come due, SBA may take one or more of the following actions:
-Report the status of your loan(s) to credit bureaus
-Hire a collection agency to collect your loan
-Offset your income tax refund or other amounts due to you from the federal government
-Suspend or debar you or your company from doing business with the federal government
-Refer your loan to the Department of Justice or other attorneys for litigation
-Foreclose on collateral or take other action permitted in the loan instruments."

OK, after Chapter 7 discharge, obviously they can't hire a collection agency, or litigate me. They can suspend me from getting loans with the federal government, including the FHA (although I think there is going to be some relief via Congress on that.)

But I can see how they can easily just confiscate any tax refund or other amounts due from the federal government. So basically until by law they cannot continue to try to collect (which is 10 years), they can take my tax refund. Obviously, the solution is to never let them get the opportunity to get such a refund!

[gmk]

I read your cut & paste to be actions I would expect them to have at their disposal pre-BK. I have not read anything wherein an SBA loan is not discharge-able. If it can be discharged then I would believe they have no recourse to future tax refunds.