SBA EIDL Loans & the Case of the “Missing Guarantee”

 

SBA EIDL Loans & the Case of the “Missing Guarantee”

Many clients have recently contacted us with a similar issue. They claim they never personally guaranteed their SBA loans. However, after their SBA loans defaulted, the SBA is reaching out to them, stating that they did personally guarantee their business's SBA EIDL loan and are requesting payment.

For context, federal law requires a personal guarantee when an SBA loan exceeds $200,000.

There appear to be two scenarios where the "Missing Guarantee" issue arises. First, the SBA made a loan to a business exceeding $200,000 and failed to require an individual to sign a guarantee. Second, the SBA initially loaned less than $200,000 to a business, then provided an additional amount exceeding $200,000 by amending the loan documents but did not require the borrower to sign a guarantee.

According to SBA records, since the loan exceeded $200,000, it should have been guaranteed.

What should one do in this situation?

Under New York law, a guaranty must be in writing to be enforceable. In Ashkir v. Wilson, No. 98 Civ. 2632, 1999 WL 710788, at *9 (S.D.N.Y. Sept. 13, 1999), it was stated that an agent is not personally liable for the obligations of his principal unless there is a written and signed personal guarantee.

In European American Bank & Trust Co. v. Boyd, 516 N.Y.S.2d 714, 716 (2d Dept 1987), it was affirmed that a guarantee is enforceable as long as it is signed by the guarantor.

While each state's law regarding guarantees may vary, most states require that a guarantee be in writing and executed to be enforceable.

Our advice to individuals in these situations is: 1. Check your SBA loan documentation to ensure you did not sign a guaranty. 2. Request that the SBA send you a copy of an executed guaranty. 3. If the SBA cannot produce the guaranty, your position should be that you are not personally liable to repay the loan upon default. If the SBA were to litigate this position, we believe you would prevail, especially in New York State.

We advise all SBA borrowers with a case involving a "Missing Guaranty" to discuss their case with an experienced attorney as soon as possible.

Jim Shenwick, Esq  917 363 3391  jshenwick@gmail.com 

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SBA EIDL Fraud & How It Is Discovered

SBA EIDL Fraud & How It Is Discovered

Every day, and often multiple times a day, we read stories about people or businesses being indicted for PPP or SBA EIDL loan fraud.

I have always wondered how these cases are discovered.

First, the SBA Inspector General has an online portal to submit loan fraud reports. The portal can be found at https://www.sba.gov/about-sba/oversight-advocacy/office-inspector-general/office-inspector-general-hotline#submit-a-complaint.

Second, the FBI has special agents and field offices throughout the country investigating SBA EIDL loan fraud and

Third, The New York Times recently published an article titled "They Investigated Pandemic Fraud, Then Earned Thousands," available at https://www.nytimes.com/2024/11/23/us/politics/pandemic-fraud-lawsuits.html. The article explains that under the False Claims Act, private citizens can file lawsuits on behalf of the federal government against those who may have defrauded the United States. If the government recovers funds, these citizens can typically earn between 15 and 30 percent of that amount. These lawsuits are known as "qui tam," or whistle-blower cases, and citizens have recovered hundreds of thousands of dollars by bringing these cases.

This story brings to mind the old adage that one person's misfortune is another person's fortune!

Jim Shenwick, Esq

917-363-3391

jshenwick@gmail.com

Please click the link to schedule a telephone call with me

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We help individuals and businesses with too much debt!

Subchapter V Bankruptcy Updates

 

A Bloomberg article https://news.bloomberglaw.com/bankruptcy-law/senate-proposal-would-grow-small-business-bankruptcy-

eligibility  is reporting that a new Senate proposal aims to increase the debt limits for Subchapter V bankruptcy eligibility for

small businesses. This proposal would restore the higher debt limit of $7.5 million for Subchapter V filings, up from the current

limit of about $3 million. The expansion would allow more businesses to take advantage of Subchapter V's benefits, which

include a more streamlined and cost-effective restructuring process compared to traditional Chapter 11 bankruptcies.

The potential revival of the higher debt limit comes after a significant drop in small business bankruptcy filings following the

expiration of the previous $7.5 million threshold.

Subchapter V, introduced in 2019, initially applied to businesses with less than $2.7 million in debt but was expanded to $7.5

million in 2020 as part of COVID-era business relief. This expansion was extended in 2022 but eventually expired, reverting

the eligibility requirement to about $3 million.

We are monitoring these developments and will continue to report on updates to Subchapter V. 

We help individuals and businesses who have too much debt!

Jim Shenwick, Esq  917 363 3391  jshenwick@gmail.com 

Please click the link to schedule a telephone call with me.

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We help individuals & businesses with too much debt!

Many small businesses teeter as costs stay high while sales drop

USAToday has an article on why so many businesses are closing or filing for Bankruptcy. At Shenwick & Associates we seeing an increase in small businesses either closing or filing for  Bankruptcy. 

https://www.usatoday.com/story/money/2024/09/29/small-businesses-inflation-struggles/75405075007/?gnt-cfr=1&gca-cat=p 

Jim Shenwick, Esq  917 363 3391  jshenwick@gmail.com 

Please click the link to schedule a telephone call with me.

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We help individuals & businesses with too much debt!

CELSIUS PREFERENCE CLAWBACK ADVERSARY PROCEEDINGS

 

CELSIUS PREFERENCE CLAWBACK ADVERSARY PROCEEDINGS

As many readers of our posts are aware, we have represented numerous former Celsius customers who have been sued in preference clawback actions in Adversary Proceedings in the SDNY Bankruptcy Court.

We have also been retained by clients who have settled their cases and asked us to review the 10-page Settlement Agreements.

At Shenwick & Associates, our bankruptcy and crypto experience has aided us in settling many cases on very favorable terms for the defendants.

Recently, the Bankruptcy Court held a hearing and determined that outstanding settlement offers will expire at 5:00 p.m. on October 15, 2024. We believe it is in the best interest of most defendants to settle their actions as soon as possible.

Clients who are defendants can contact Jim Shenwick, Esq. to discuss pending lawsuits or settlements.

Jim Shenwick, Esq  917 363 3391  jshenwick@gmail.com 

Please click the link to schedule a telephone call with me.

https://calendly.com/james-shenwick/15min

We help individuals & businesses with too much debt!

Bankruptcy Boom: Why More Young Adults Are Drowning in Debt!

Bankruptcy Boom: Why More Young Adults Are Drowning in Debt!

 Forbes has a very interesting and informative article about young adults, debt and surging bankruptcy filings by young people. The article can be found at https://www.forbes.com/advisor/debt-relief/bankruptcies-on-the-rise-gen-z-millennial-debt/

At Shenwick & Associates we can confirm that many young people are filing for Bankruptcy.

Jim Shenwick, Esq  917 363 3391  jshenwick@gmail.com 

Please click the link to schedule a telephone call with me.

https://calendly.com/james-shenwick/15min

We help individuals & businesses with too much debt!

Many Small Businesses Struggle with COVID-19 EIDL Loan Repayment

 

Many Small Businesses Struggle with COVID-19 EIDL Loan Repayment

Recent reports highlight a growing concern for small businesses that received Economic Injury Disaster Loans (EIDL) during the COVID-19 pandemic. According to a Fast Company article, a significant number of these businesses are facing difficulties in repaying their loans.   The article can be found at https://www.fastcompany.com/91183555/eidl-loans-covid-19-small-businesses

The Scale of the Issue

The Small Business Administration (SBA) distributed approximately 4 million loans through the EIDL program, totaling $380 billion. As of late 2023, more than $300 billion remained outstanding. Unlike some other pandemic-era financial assistance, EIDL loans are not forgivable and must be repaid in full.

Impact on Business Operations

Businesses with outstanding EIDL loans are experiencing several challenges:

Reduced access to additional credit

Limitations on new investments due to existing debt

Potential closure or bankruptcy for those unable to meet repayment terms

Our Experience

As legal professionals specializing in business debt issues, we've worked with hundreds of companies struggling with SBA EIDL loans. These loans range from $20,000 to $2,000,000. Our observations align with the broader trend:

The majority of our clients have been unable to make payments on their SBA EIDL loans

Many have found it impossible to refinance these loans

A significant number have either:

Closed their businesses

Filed for bankruptcy

Attempted to negotiate workouts with the SBA

Additional Complications

Businesses defaulting on SBA EIDL loans face further challenges:

Personal guarantee issues

Cancellation of debt tax implications

We have extensive experience counseling clients on these complex matters.

Seeking Assistance

If your business has defaulted on an SBA EIDL loan or you're dealing with personal guarantee issues related to these loans, it's crucial to seek professional advice.

Contact Jim Shenwick for assistance:

Jim Shenwick, Esq.

Phone: 917-363-3391

Email: jshenwick@gmail.com

To schedule a 15-minute telephone consultation, please use our online scheduling tool.

We specialize in helping individuals and businesses manage overwhelming debt.

Celsius Preference Claw back Adversary Proceedings: To Settle or to Fight?

 

As many of our readers are aware, Jim Shenwick, Esq., a New York State licensed Bankruptcy attorney with extensive crypto experience, is representing numerous Celsius customers who have been sued in preference claw back adversary proceedings.

 One of the most frequent questions we receive is whether clients should settle with Celsius or defend against the litigation. In this post, we'll explore why settling might be the better option for most defendants.

 Why Settlement May Be Preferable

 1. Legal Basis: While many clients believe these lawsuits are baseless or unfair, Section 547 of the Bankruptcy Code actually permits a debtor to file preference claw back actions. Our law firm has defended these actions across various industries, including retail, jewelry, garment, and crypto.

 2. Cost of Defense: Defending against these actions can be expensive. Costs include:

   - Retaining an experienced attorney

   - Participating in mediation (paying half the cost)

   - Engaging in discovery with the debtor

   - Potentially going to trial before a bankruptcy judge

 3. Time and Resources: These cases are often difficult and time-consuming to defend. Legal fees, mediation costs, and expert witness fees can range from $25,000 to $100,000. The process could take up to three years to reach trial.

 4. Limited Defenses: Common defenses in preference cases include:

   - "Ordinary course of business": This defense typically does not apply in crypto cases where most parties invested and withdrew funds in a single transaction.

   - "New value": This defense requires that the customer bought more crypto from Celsius after their initial withdrawal. We have not encountered this scenario in our cases.

 5. Untested Legal Arguments: Some attorneys and consultants suggest defenses based on Sections 546(c) and 546(g) of the Bankruptcy Code. However, these defenses require a judge to classify crypto as either a commodity, a security or a swap agreement.. While some government agencies such as SEC and the CFTC have taken these positions, we are not aware of any bankruptcy case that has made such a determination.

 The Case for Early Settlement

 1. Favorable Terms: In our experience, earlier settlements in preference litigation often come with more favorable terms for defendants.

 2. Avoiding Escalating Costs for Both Parties: If the debtor is forced to litigate, try the case and prevails, settlements after judgment are likely to be significantly more expensive for defendants then pretrial settlements.

 3. Learning from History: In the Madoff case, defendants who chose to litigate rather than settle often ended up losing their cases, paying substantial legal fees and expert witness fees, and having to pay the full judgment amount plus post judgment interest of 9% per anum.

 

Our Recommendation

While each case has its unique facts, we generally recommend that Celsius defendants do the following:

 1. Hire an experienced bankruptcy attorney with crypto knowledge.

2. Work towards settling their cases as soon as possible and for the lowest amount achievable.

 Our firm has represented many Celsius defendants and has successfully settled numerous cases on favorable terms for our clients.

 Contact Information

 If you're a Celsius defendant looking to discuss your lawsuit or explore settlement options, please contact:

Jim Shenwick, Esq.

Email: jshenwick@gmail.com

Phone: 917-363-3391

 To schedule a 15-minute telephone consultation, please use this link: [Schedule a Call](https://calendly.com/james-shenwick/15min)

 

Disclaimer: This blog post is for informational purposes only and does not constitute legal advice. Each case is unique, and you should consult with a qualified attorney to discuss your specific situation.

 

Money Startups Are Booming--but So Are Bankruptcies INC.

Startups Are Booming--but So Are Bankruptcies. See the article at Inc. https://www.inc.com/chris-morris/bankruptcies-vc-backed-startups-rising-data.html

Jim Shenwick, Esq  917 363 3391  jshenwick@gmail.com 

Please click the link to schedule a telephone call with me.

https://calendly.com/james-shenwick/15min

We help individuals & businesses with too much debt!