SBA disaster loan Chapter 7 in Texas

[Agedchedder]

Hello,
My wife and I have 2 childcare centers in Texas and we just closed one down last month. We haven't filed for bankruptcy yet but the concern is the large SBA Government emergency loans. At this time they are not forgiven. I know there are great exceptions for bankruptcy in Tx but not sure about the government loans. Any help really appreciated!

[justbroke]

Welcome to BKForum.

The problem with the SBA loan is whether or not you granted a consensual lien against your property. If the EIDL is above $200,000 then you would have needed to pledge property of the business. I don't know if you gave a personal guarantee as well but a personal guarantee can be discharged. The issue is if you personally pledged your property to back the EIDL loans.

How large was your EIDL loan(s)? Did you have to pledge property? How was your business organized (I'm hoping an LLC or better)? Did you only pledge business assets? You may need to talk to a business attorney to deal with winding up your company and dealing with the SBA. If you pledged business assets you have to be careful especially if there are UCC liens filed. The biggest thing is the organization of the business and whether you made personal guarantees or allowed the SBA loans to attach to personal property.

[Agedchedder]

Thank you for the detailed response! Yes both are LLC’s and the amount was over 200k per location. We only pledged the business and assets of the business. Both locations are in a retail space which we lease so really not much they can take. How would I know if a UCC lien was placed?

[justbroke]

If it's the SBA assume that the liens are in place. It just goes to how you would liquidate the business and pay the SBA with what you have. I haven't personally seen any bankruptcies that have dealt with the EIDLs. Just make sure you have an attorney that understands SBA loans.

[despritfreya]

EIDL loans are no different from any other loan secured by a blanket lien (UCC1). SBA gets the collateral (if it wants it), liquidates the collateral, applies the proceeds to the loan and can sue on the deficiency. SBA could decide to forego its collateral and just sue on the promissory note.

SBA can also sue the guarantor. HOWEVER there are thousands of these defaulted EIDL loans with personal guarantees. At this time I am not aware of any attempts to sue. The Government simply has too many of them to deal with and not enough resources. I have handled dozens of such loans and have yet to see an attempt to collect from the guarantor. This includes one that is 2.2 million to which we just confirmed a Chapter 11 Plan treating the SBA as totally unsecured. The principal may or may not have to file his/her own bk at some point but not right now.

As to bk. . .

If the entity wants to stay in business it would file a Chapter 11 (most likely under Subchapter V). SBA would be secured depending upon its placement of the UCC1. Is the SBA the only creditor with a UCC1? If there are other creditors with UCC1s who is in 1st position, who is in second and so on. This is important due to cash collateral issues and the value of the collateral for the purpose of cramdown. Regardless, the attorneys for the SBA are very easy to work with.

If the entity is not going to continue in business, there would be little reason for it to file bk. Instead, we look at the principal of the entity. Is he/she a bk candidate? Are there other personal guarantees? If, but for the SBA, he/she needs a bk, is it a Chapter 7 or 13. If the only reason to file is the SBA, a bk now may not be necessary.

These are all issues to discus with your attorney.

Des

[Agedchedder]

Des, Thank you for the great information regarding the EIDL Loans. Gives me some hope!