SBA Loan Bankruptcy

[sdonner]

Is an SBA Loan discharged in bankruptcy?

[starr4law]

Typically, the short answer is yes. There are a few odd scenarios that could potentially factor in (how long ago did you take the loan, was there anything in the application that was "fraudulent", is the business still open and has assets, etc.). For a personal bankruptcy, you would simply list it on your Sch F (or Sch D if there was property used to secure the loan) and your personal liability for the loan would be discharged in a Ch 7. If the business is still "alive", they can seek a judgment against the business itself. If the business is inactive, defunct, closed, in bankruptcy or receivership, then there is simply no way for them to get the funds.

Good luck!

[HHM]

Typically, the short answer is yes. There are a few odd scenarios that could potentially factor in (how long ago did you take the loan, was there anything in the application that was "fraudulent", is the business still open and has assets, etc.). For a personal bankruptcy, you would simply list it on your Sch F (or Sch D if there was property used to secure the loan) and your personal liability for the loan would be discharged in a Ch 7. If the business is still "alive", they can seek a judgment against the business itself. If the business is inactive, defunct, closed, in bankruptcy or receivership, then there is simply no way for them to get the funds.

Good luck!

Concur...short answer yes. The other main problem with SBA loans is that in many circumstances, the loan is secured against the business owners house. That lien will survive BK and you cannot strip that lien in a chapter 7 BK. So, in that scenario, a BK can still make sense to discharge your personal liability, and then negotiate a settlement with the SBA to remove the lien (the SBA has its own version of an Offer in Compromise).

[starr4law]

Good point, HHM - in addition to real property, the SBA loan could also secure business property like tools and equipment that would have to be surrendered or negotiated. Remember, lenders (even the SBA) like money more than they like your property so negotiating is a real possibility.

[dontodrin]

Re: SBA Loan Bankruptcy

It can be, yes, but if it is attached to your home with a subordinate lien you have larger problems as your home may be then at risk. Check with a bankruptcy lawyer in regards to your specific situation.