Currently Not Collectible (CNC) Status and Defaulted SBA Loans

 Currently Not Collectible (CNC) Status and Defaulted SBA Loans

“Currently Not Collectible” (CNC) status can, in limited cases, be used to temporarily pause collection activity on a defaulted SBA loan. 

CNC is not an SBA program and is not available immediately after default. 

It may only be requested once the loan has been charged off, assigned to the SBA, and referred to the U.S. Treasury or IRS for collection. 

At that stage, collection efforts may include the Treasury Offset Program, private collection agencies, or IRS cross-servicing. 

If the IRS is the active collector, a borrower may request CNC status by demonstrating financial hardship. 

To qualify, the borrower must show that there is no disposable income after basic living expenses. 

If approved, CNC may temporarily stop wage garnishments, levies, and aggressive IRS collection actions. 

However, CNC does not eliminate the SBA debt or stop interest from accruing. 

Tax refunds may still be intercepted, and the account can be reactivated if the borrower’s financial condition improves. 

Even with CNC status, the SBA retains the right to enforce guarantees and resume collection efforts in the future.

Borrowers or advisors with questions about defaulted SBA loans and borrower alternatives should contact Jim Shenwick, Esq

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!

Increased SBA and Treasury Collection Actions on Defaulted SBA Loans

 

 

At Shenwick and Associates, we regularly represent individuals and businesses facing financial distress, including borrowers who have defaulted on Small Business Administration (SBA) loans. Over the past several months, we have observed a marked increase in aggressive collection activity by the SBA and the U.S. Department of the Treasury against borrowers and guarantors of defaulted SBA loans.

 

Heightened Enforcement Activity in Late 2025 and 2026

Beginning in the last quarter of 2025 and continuing into 2026, collection efforts by the SBA and the Treasury have intensified. These efforts are not limited to letters or informal demands. Instead, we are seeing the government use a broad range of statutory collection tools, including:

• Retention of private collection agencies to pursue defaulted SBA loans;
• Administrative wage garnishment of up to 15% of a debtor’s wages, without the need for a court judgment;
• Seizure of federal tax refunds through the Treasury Offset Program; and
• Offset of Social Security benefits, with up to 15% of monthly payments taken from individuals who are personally liable for, or who guaranteed, SBA loans.
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These collection actions are being taken against both primary obligors and personal guarantors of SBA loans. If you signed a personal guarantee, your personal income and federal benefits may be at risk.

 

The “They Won’t Collect” Myth

We recently met with a new client who told us that their accountant had advised them: “Don’t worry about a defaulted SBA loan—the SBA isn’t really collecting on those loans.” Unfortunately, that advice is simply wrong!

 

Based on our recent experience and the increasing number of calls we are receiving, it is clear that the SBA and Treasury authorities are actively pursuing collection of defaulted SBA loans. Assuming that the government will not act is a mistaken and risky strategy that can result in wage garnishments, lost tax refunds, and reduced Social Security income.

Take Action Early

If you have defaulted on an SBA loan, or if you personally guaranteed an SBA loan that is now in default, it is critical to take proactive steps. Options may exist to address the debt, such as a mitigate collection efforts, or restructure or resolve the obligation, or a bankruptcy filing and or a payment plan with Treasry—but those options are often time-sensitive.

 

Consulting with an experienced bankruptcy and workout professional can make a meaningful difference in protecting your income, your retirement income and your financial future.

 

If you are facing collection activity related to a defaulted SBA loan, we encourage you to seek qualified legal advice sooner rather than later. For those clients or their advisors who have questions with respect to defaulted SBA loans, please contact Jim Shenwick, Esq.

 

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!

Why It Is Too Late For Asset Protection Planning After A Claim Arises

 

Why is it Too Late for Asset Protection Planning after a Claim or Litigation Arises?

Jay Adkisson has written a very informative article about why it is difficult to do Asset Protection Planning after a claim or lawsuit arises. The article was published in Forbes. At Shenwick & Associates we get many telephone calls and emails from clients about Asset Protection Planning and we summarize that article below.  

 Clients often ask whether they can protect their assets after a lawsuit threat appears on the horizon. Mr.  Adkisson explains in his article, that once a claim exists, meaningful asset protection planning is unavailable. 

Under the Uniform Voidable Transactions Act (and its predecessor, the Uniform Fraudulent Transfers Act), a “claim” arises the moment the underlying event giving rise to liability occurs—not when a demand letter arrives, not when a complaint is filed, and not when a judgment is entered. 

Any transfers made after that point are vulnerable to attack as voidable transactions.

Many debtors mistakenly believe they are safe if payments are current or no lawsuit has been threatened, but the law provides no such protection. 

Mr. Adkisson states that post-claim transfers often trigger serious consequences far beyond simply unwinding the transaction. 

-Creditors can sue the transferee—often a spouse, child, or friend—and obtain a judgment for the value of the transferred asset. 

-Courts may award attorney’s fees, civil conspiracy damages, or even punitive or trebled damages if the transfer was intended to evade creditors. In bankruptcy, these transfers can result in denial of discharge under § 727, converting what might have been a dischargeable debt into a permanent financial burden.

 Asset protection planning must occur before any claim exists. 

However, if a claim exists or litigation has been commenced clients are still allowed to utilize Federal & State Exemption statutes.

Clients or their advisors with questions about Asset Protection Planning should contact Jim Shenwick, Esq. 917 363 3391  jshenwick@gmail.com

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!

Chapter 7 Business Bankruptcy Filings in SDNY and EDNY

 

Chapter 7 Business Bankruptcy Filings in SDNY and EDNY

In today’s challenging economic climate, many businesses are struggling due to declining sales, high interest rates, tariffs, supply-chain pressures, or other factors. As a result, an increasing number of business owners in the Southern and Eastern Districts of New York are choosing to close their doors and file for Chapter 7 bankruptcy. Filings commonly rise after the holiday season, following Christmas and Chanukah.

Most business filers are Subchapter S corporations or LLCs. A Chapter 7 bankruptcy for a business is a liquidation proceeding. While many cases are “no-asset” cases, if the company does have assets, the Chapter 7 Trustee will hire a liquidator or auctioneer to sell those assets and generate funds for distribution to creditors.

Trustee Document Requests

After a business files for Chapter 7, the Trustee will typically request financial documents, including:

• Bank statements

• Tax returns

• Credit card statements

• Accounting records

• Contracts and leases

• Any documents reflecting asset transfers

These materials are reviewed by the Trustee, Trustee’s counsel, or the Trustee’s accountant to identify preferential payments, fraudulent conveyances, and other questionable or prohibited transactions.

Common Transactions the Trustee Will Scrutinize

Below are transactions frequently examined or challenged in a Chapter 7 business case:

1. Preference Payments
   Transfers made to creditors within 90 days before filing (or within one year if to an insider such as a family member, officer, or business partner) that give one creditor more than others. The Trustee may “claw back” these payments to ensure equal treatment.

2. Fraudulent Conveyances
   Transfers made to hinder, delay, or defraud creditors—or transfers for less than reasonably equivalent value—typically within two years under the Bankruptcy Code, and longer under New York’s Debtor & Creditor Law. These often involve “sweetheart deals,” including transfers to family members, insiders, or related entities.

3. Personal Expenses Paid by the Business
   Payments for the owner’s personal insurance, car expenses, meals, vacations, or similar items can be flagged by the Trustee as improper or excessive.

4. Gifts or Large Transfers to Friends or Family
   Significant transfers to insiders may be reversed if the Trustee determines the business did not receive value in return.

5. Sales of Assets Below Fair Market Value
   Selling equipment, inventory, or property for less than fair market value, particularly shortly before filing, raises red flags for fraudulent transfer claims.

6. Unusual or Inconsistent Transactions
   Any activity that departs from ordinary business practices—such as sudden depletion of assets, hidden accounts, cash withdrawals, or unreported income—will be reviewed carefully.

7. Undervalued Transactions
   Transfers where the business received significantly less than fair market value, sometimes going back up to five years under applicable state law.

8. Transfers Intended to Defeat Creditors
   Any transfer made to move assets out of reach of creditors (e.g., shifting assets to a family member or affiliate) is subject to reversal.

9. Transactions Where Consideration Is Paid to a Third Party
   If property goes to one person but payment goes to someone else, the Trustee may challenge the transaction as improper.

10. Transfers to Insiders or Related Entities
    Deals involving officers, directors, family members, or other businesses under common ownership are examined with particular scrutiny.

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If you or your advisors have questions about Chapter 7 business bankruptcy filings in SDNY or EDNY, please contact:

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

Schedule a phone call:
https://calendly.com/james-shenwick/15min

We help individuals and businesses with too much debt.

Covid Loans That Boosted Businesses Now Push Them to Bankruptcy

Bloomberg Law has an excellent article titled “Covid Loans That Boosted Businesses Now Push Them to Bankruptcy” concerning SBA EIDL loans and the bankruptcy filings by the businesses that received them and the guarantors who guaranteed those loans. The article can be found at https://news.bloomberglaw.com/bankruptcy-law/covid-loans-that-boosted-businesses-now-push-them-to-bankruptcy

The article states that many businesses that received SBA EIDL are filing for chapter 7 bankruptcy and the guarantors of those loans are filing for bankruptcy as well.  SBA EIDL loans over $200,000.00 required a personal guarantee from the principal.

The article states that by the end of 2024, the SBA had charged off 370,000 EIDL loans worth about $47 billion and was trying to collect on another $14.7 billion in loans that had been delinquent for at least three months.

At Shenwick & Associates we are receiving many phone calls from SBA EIDL loan borrowers who cannot repay those loans.

Clients or advisors who have questions about SBA EIDL loans or the SBA enforcement remedies should contact Jim Shenwick, Esq at 917 363 3391 or jshenwick@gmail.com

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

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

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 held individuals & businesses with too much debt!

Business Bankruptcy Filings Increase by 30%

 Inc. is reporting that business bankruptcy filings increased by 30%. The article can be found at https://www.inc.com/melissa-angell/small-business-bankruptcies-surged-30-percent-this-past-year-will-tariffs-accelerate-that/91221717

Michael Hunter of EPIC is quoted in the article as stating that the cause of this increase is a constellation of factors: including higher interest rates, inflation, record debt, and global geopolitical uncertainty. 

Interestingly, Mr. Hunter also states that bankruptcy filing will continue to rise for the rest of 2025 and 2026.

Most small businesses file under Subchapter V (of chapter 11) which is  simpler and  more affordable than chapter 11. 

The Subchapter V debt limit is presently $3,424,000.00.

-Subchapter V provides a simplified reorganization process with shorter deadlines, such as a plan filing deadline within 90 days of the bankruptcy filing

-Subchapter V cases eliminate certain expenses such as no United States Trustee quarterly fees and no creditor committees unless ordered for cause.

-Only the debtor may file a reorganization plan in Subchapter V

-Subchapter V does not require a separate disclosure statement, reducing administrative burden and costs.

-Subchapter V eliminates the "absolute priority rule," allowing owners to retain equity even if creditors are not paid in full, and permits confirmation without creditor class acceptance as long as the plan is fair and equitable.

- A Subchapter V Trustee is appointed to assist the debtor and facilitate negotiations with creditors, but does not operate the business.

Clients or professionals with questions about business reorganizations or Subchapter V should contact Jim Shenwick, Esq

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!

Corporate Bankruptcy Filings in US

Webpronews reports a 73% increase in corporate bankruptcies for 2025, with business bankruptcy filings reaching their highest monthly level since 2020.

At Shenwick & Associates, we have observed this increase and wish to review the various types of bankruptcy available to businesses.

Chapter 7 Bankruptcy involves the liquidation of a business by a Chapter 7 Bankruptcy Trustee. The Trustee closes the business and liquidates any assets for the benefit of creditors. However, the Chapter 7 bankruptcy trustee can also commence avoidance actions (preference and fraudulent conveyance actions) and sue the corporate debtor's shareholders if they have used business assets for personal expenses.

Chapter 11 Bankruptcy can involve reorganization or liquidation of assets by existing management. Unfortunately, Chapter 11 reorganizations require filing a plan and a disclosure statement, as well as soliciting votes to confirm a plan. This process can be extremely expensive, often prohibitively so for small businesses. A business can also use a Chapter 11 filing for liquidation by existing management.

Subchapter V Bankruptcy is a type of Chapter 11 bankruptcy filing for small businesses. The maximum debt is $3,424,000, and at least 50% of the debtor’s total debts must stem from commercial or business activities. Only small business debtors (which may include individuals or entities) may file under Subchapter V. Subchapter V is a simplified form of Chapter 11 filing; a debtor only needs to file a plan, not a plan and disclosure statement.

Chapter 13 Bankruptcy is for individuals only.

People with questions about what type of Bankruptcy to file can call Jim Shenwick, Esq

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!

Chapter 7 Business Bankruptcy Filings in SDNY & EDNY

 

Shenwick & Associates has filed numerous bankruptcy petitions for businesses (LLCs and Corporations) in the Southern District of New York and the Eastern District of New York. We have recently observed a trend where Chapter 7 Bankruptcy Trustees are conducting a "deeper dive" into business finances to initiate avoidance actions (Preference or Fraudulent Conveyance) against business owners or third parties. 

The Bankruptcy Trustee and their counsel get compensated for bringing these transactions.

These actions are permissible under the Bankruptcy Code; however, they can be time-consuming and expensive to defend or settle.

Additionally, once a Chapter 7 bankruptcy case is filed, dismissal can be difficult. After the business files for Chapter 7 Bankruptcy, the Bankruptcy Trustee assigned to the case will request bank statements, tax returns, credit card statements, and other financial documents for the business. These will be reviewed by the Bankruptcy Trustee, their counsel, or their accountant.

Transactions which will be heavily scrutinized include but are not limited to:

1 Preference payments.  Payments or transfers made to creditors within 90 days before filing (or within one year if to an insider, such as a family member or business partner) that give one creditor more than others. The trustee can “claw back” these payments to ensure equal treatment among creditors

2 Fraudulent Conveyances Transfers of property or assets made with intent to hinder, delay, or defraud creditors, or made for less than reasonably equivalent value, typically within two years prior to filing (sometimes longer under state law). The trustee can reverse these to recover assets for the bankruptcy estate (“Sweetheart deals to 3rd parties or owner of the business and their friends or family

3 Personal expenses  of Owner of business paid by Business such as insurance, car payments, meals or vacations

4 Gifts or large transfers to friends/family: Any significant gifts or transfers of value, especially to insiders, are closely examined and can be reversed if deemed improper.

5 Sales of assets for less than fair market value: The trustee looks for any sales or transfers where the business did not receive fair value, as these may be considered fraudulent.

6 Unusual or inconsistent transactions: Any financial activity that appears out of the ordinary, such as sudden depletion of assets, hidden accounts, or unreported income, will be investigated

7 Undervalued transactions: Transfers where the debtor sold or gave away property for less than its fair market value within a set period before bankruptcy (often up to five years). For example, selling a car to a relative for a nominal amount can be voided

8 Transfers to defeat creditors: Any transfer made with the intent to hinder, delay, or defraud creditors—such as moving assets to a family member or friend to keep them out of the bankruptcy estate

9 Transactions where consideration is given to a third party: If the debtor transfers property to one person but the payment or benefit goes to someone else, this can be voided to prevent circumvention of bankruptcy rules

10 Sales or transfers of assets to insiders, officers, family members, or other businesses under common control

These are some transactions that will be scrutinized; if similar transactions occurred previously, one may reconsider a Chapter 7 bankruptcy filing.

Clients or their advisors with questions about chapter 7 business bankruptcy filings should contact 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!

Can an LLC Member Interest Owned by a Debtor in Chapter 7 Bankruptcy be Sold by Bankruptcy Trustee?

 When we file a Chapter 7 bankruptcy petition for an individual, clients often ask which assets they will be able to keep after the bankruptcy case is closed.

Oftentimes, clients own interests in LLCs or partnerships and want to know if they will lose that interest in Chapter 7 bankruptcy.

Forbes recently published an article by Jay Adkisson titled “Can an LLC Interest Owned by a Debtor Be Sold by the Bankruptcy Trustee?” In this well-written article, Mr. Adkisson analyzes a recent case of first impression in the Eastern District of Kentucky, captioned Business Aircraft Leasing v. Ultra Energy Resources LLC (In re Addington).

The bankruptcy court held that in a Chapter 7 bankruptcy filing, a bankruptcy trustee can sell an economic right in an LLC member's interest. In the Addington case, Larry Addington filed for Chapter 11 bankruptcy, which was later converted to Chapter 7. He owned a 36% membership interest in a limited liability company called Ultra Energy Resources, LLC. 

The judge in the Addington case discusses that an LLC membership interest consists of a governance interest, which includes the right to manage the LLC, vote to admit members or dissolve the LLC, and the economic rights of an LLC, which are the rights to distributions of money or property from the LLC.

The dispute in the case was whether the creditor who purchased the LLC interest from the Chapter 7 Bankruptcy Trustee acquired governance interests or economic rights. The LLC's position was that the purchaser had simply acquired economic rights, and the bankruptcy court, in a declaratory judgment, held that the purchaser had indeed only acquired economic rights, not governance interests.

In reaching his decision, the Bankruptcy Judge analogized to a charging lien that a judgment creditor obtained on a debtor LLC member's interest. 

The Addington case is one of the first to involve the sale of a membership interest in an LLC by a Bankruptcy Trustee in a Chapter 7 proceeding.

Mr. Adkisson, in his article, notes that the managers of a closely held LLC are unlikely to admit the purchaser as a member unless they know the purchaser will be friendly. 

A few comments based on our experience:

1. If the LLC is a single-member LLC, the Bankruptcy Trustee will be able to sell the member's governance and economic interest.

2. Whether a governance or economic interest can be sold will often depend on the terms of the Operating Agreement and state LLC law.

Individuals or their advisors with questions pertaining to the sale of LLC member interests in a chapter 7 bankruptcy filing should contact Jim Shenwick, Esq.

jhs

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!

UPDATE OFFERS IN COMPROMISE (“OIC”) FOR SBA EIDL LOANS 04-22-2025

 OFFER IN COMPROMISE (“OIC”) FOR  SBA EIDL LOANS UPDATE

Is the SBA accepting OIC applications for SBA EIDL loans? If you search online, you'll find conflicting answers. Most results indicate no

Yesterday I (Jim Shenwick, Esq) called the SBA EIDL Customer Service and spoke with a representative who said the following:

The SBA were doing offers in compromise on a case-by-case basis on a loan-by-loan basis”.  

They would provide me with no further information and my take away from the telephone call was that under the right circumstances and the right fact pattern the SBA would consider an OIC, however the SBA is looking for full repayment of SBA EIDL loans and they would be reluctant to accept discounted or reduced payments. 

Clients or their advisors with questions about SBA EIDL loans are encouraged to contact Jim Shenwick, Esq.

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!