Question SBA Disaster Loan

[DavMe]

If you have an active personal SBA disaster loan but are forced into bankruptcy, can you ask to leave SBA debt out of the bankruptcy? My repair was complicated with multiple vendors and I don't want to have to produce a lot of receipts and documentation from years ago to prove it was done legitimately. If not, then how aggressive is the SBA? Does anyone have any experience with this they can share?

Thanks!!!!

[justbroke]

The bankruptcy code provides that all creditors must be listed. There is no way to tell a creditor to "leave" it out of bankruptcy because the bankruptcy discharges your personal responsibility (in personam) to pay.

The major question will be whether the disaster loan is secured against your property. If it is secured then the SBA would have a lien and can foreclose. But, I would suspect that if you continue to make on time payment on the loan then you would not be in default and not be subject to a foreclosure against the lien.

Was this a traditional disaster loan for a weather or other event? (I'm just asking.)

Also, do you know if you pledged property for this loan?

[DavMe]

This was for a hurricane and large enough that it has a lien against my home. I'm over a month behind, but not yet into SBA's debt mafia trigger time-frame. I'm in Texas and the house value is upside-down against what is owed so they have an incentive to let me pay, but after all the effort and life lost in getting it repaired, it would be a huge emotional blow to lose it. I would rather I walked away after the storm in the first place.

[justbroke]

If you're going to file a Chapter 13 and your home's first mortgage is less than the value of the home, it is possible that you could ask the court to determine if the junior loans are not secured for purposes of the Chapter 13. This is known as a lien strip of strip off. This process is used heavily in Chapter 13s where subordinate loans can be voided and discharged if there is not at least $1 of equity to "secure" them.

I would imagine that your SBA loan is not your primary lien and is junior to a first mortgage. If that is the case, please consult with a Chapter 13 bankruptcy attorney and ask about stripping off the SBA lien. (You said you were underwater. However, to use this lien stripping feature, the value of the home must be less than the balance on the first or superior liens.)

As for emotional attachment to a house, all I can say is to not go in debt over a house. Home is where you hang your hat. Don't let emotion drive a business decision.