Bankruptcy Filing Fees as of 10-12-2026

 

Bankruptcy Filing Fees as of 10-12-2026

 

 

Chapter	Filing Fee
7	$338.00
13	$313.00
11	$1,738.00

Tax Consequences of an SBA EIDL Loan Default

 

Does Defaulting on an SBA EIDL Loan Result in Taxable Income?

Bottom line: Defaulting on an SBA EIDL loan can create a federal income tax bill on top of the collection problem, and many borrowers and their advisors never ask about it.

Background

After the PPP loans, the SBA made Economic Injury Disaster Loans (EIDL) to small businesses. The loans ranged from $20,000 to $2 million. Unlike PPP loans, EIDL loans are not forgivable. If a loan exceeded $200,000, the business principal was required to guarantee it.

A significant number of borrowers have defaulted. They now face collection efforts by the SBA, the Treasury Offset Program, or collection agencies retained by the Treasury Offset Program.

The Question Most Borrowers Forget to Ask

Clients and their advisors usually call us about liability: what happens to the business, and what happens to the guarantor personally. They rarely ask about the tax consequences of the default, including cancellation of debt (COD) income under section 108 of the Internal Revenue Code.

The general principle is that a borrower who receives loan proceeds and does not repay them has received an economic benefit. The unpaid amount is taxed as ordinary income, not capital gain. A default can therefore leave a borrower owing tax on money that has already been spent.

See our prior posts, Increased SBA and Treasury Collection Actions on Defaulted SBA Loans https://shenwick.blogspot.com/2026/01/increased-sba-and-treasury-collection.html

and

Treasury Offset Program (TOP) and SBA EIDL Loans

https://shenwick.blogspot.com/2024/04/treasury-offset-program-top-and-sba.html

Ways to Avoid Recognizing COD Income

The Internal Revenue Code provides exceptions under Section 108:

1. Bankruptcy. If the individual facing COD income files a personal bankruptcy case, the discharged debt does not generate COD income.

2. Insolvency (balance sheet test). If the borrower's liabilities exceed the borrower's assets, and the borrower files the appropriate form with the Form 1040, the borrower does not have to recognize COD income.

Other tax strategies may also be available, depending on the borrower's circumstances.

Talk to Us Before the Tax Return Is Filed

If you or your client has defaulted on an SBA EIDL loan, contact Jim Shenwick to discuss the consequences of the default and the ordinary income that may have to be recognized. Addressing COD income before the return is filed keeps more options open.

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! & creditors in Bankruptcy cases

Subchapter V Debt Limit May Permanently Increase to $7.5 Million

 Subchapter V Debt Limit May Permanently Increase to $7.5 Million

On August 3, 2026, the U.S. Senate unanimously passed S. 3977, the Bankruptcy Threshold Adjustment Act of 2026. The bill would permanently restore the Subchapter V debt limit to $7.5 million for qualifying small businesses and individuals seeking to reorganize under Chapter 11.

If S. 3977 becomes law, the $7.5 million Subchapter V debt limit would become permanent. A companion bill, H.R. 7730, is already moving through the House of Representatives.

The full story can be found below at JD Supra

https://www.jdsupra.com/legalnews/senate-passes-bill-to-permanently-raise-2736770/

For a prior post we wrote about Subchapter V bankruptcy see SBA EIDL Loans and Subchapter V Bankruptcy

https://shenwick.blogspot.com/2026/07/sba-eidl-loans-and-subchapter-v.html

Clients and advisors with questions about Subchapter V bankruptcy should contact Jim Shenwick, Esq. at jshenwick@gmail.com or 917-363-3391.

 


SBA EIDL Loans and Subchapter V Bankruptcy

Two clients recently came to my firm with the same problem: an LLC had guaranteed an SBA EIDL loan, the loan was in default, and they wanted to know whether a Subchapter V filing could put the loan back on track.

The short answer: yes, in most cases the LLC can restructure the debt through a confirmed Subchapter V plan. But the outcome — and whether the business will have enough cash flow to actually make the payments — depends on where the loan sits in the collection pipeline when the case is filed. And a Subchapter V filing does not, by itself, protect a personal guarantor.

How Subchapter V Treats SBA EIDL Debt
An LLC in Subchapter V can propose to pay the SBA claim over the plan term and bind the SBA if the plan is confirmed under Chapter 11, Subchapter V. SBA EIDL debt is treated like other commercial secured or unsecured debt — subject to the loan documents, any collateral, and any guaranties.

If the loan was accelerated or placed in default, a confirmed plan may provide for cure and maintenance, or other restructured treatment, depending on the note, the maturity date, and whether the debt is secured.

The real question for most clients isn't whether the debt can be restructured — it's whether the LLC will have the disposable income to service it post-confirmation. That analysis depends on where the loan is in the servicing chain.

1. The Loan Is Still Serviced by the SBA (Best Case)
If the loan has not yet been referred to Treasury for cross-servicing, the debtor can generally propose to:

Cure prepetition payment defaults through the Subchapter V plan.
Reinstate the loan on its original maturity schedule (typically 30 years).
Resume regular monthly payments.

The SBA has frequently accepted Chapter 11 plans that cure arrears over the life of the plan (or another negotiated period), leave the remaining loan balance in place, and continue the original interest rate. This functions much like reinstatement, though the Bankruptcy Code does not use that term for ordinary secured or unsecured loans outside certain specific contexts.

2. The Loan Has Been Referred to Treasury
Once the SBA refers the loan to the U.S. Department of the Treasury for cross-servicing, Treasury takes over collection, adds administrative fees of 30%, and may initiate offsets and other collection efforts.
Filing Subchapter V triggers the automatic stay under 11 U.S.C. § 362, which stops most collection activity. However, Treasury does not automatically return the loan to the SBA simply because a bankruptcy case is filed.
In practice:

Treasury will usually suspend collection during the case.
The SBA participates as a creditor in the bankruptcy.
After confirmation, the agencies determine who services the loan going forward.

Whether servicing returns to the SBA is an administrative decision, not a right created by the Bankruptcy Code.
3. Treasury Has Already Accelerated the Debt
Acceleration alone does not necessarily prevent Chapter 11 treatment. The debtor may still propose a plan that restructures repayment, modifies payment terms (subject to applicable Code provisions), or pays the claim over time — provided the plan satisfies confirmation requirements. Subchapter V gives debtors considerably more flexibility than Chapter 7 or Chapter 13 to restructure business debt.

4. The SBA's Position in Subchapter V
The SBA generally evaluates:

Feasibility under 11 U.S.C. § 1191.
Adequate treatment of its claim.
Cash flow.
Collateral value.
Continued business operations.
Likelihood of repayment.

Bifurcating the Claim Under Section 506(a)
If the EIDL loan is between $25,000 and $200,000, it is secured by a blanket UCC-1 lien on all corporate personal property. If the liquidation value of that collateral is less than the loan balance, the debtor may be able to use 11 U.S.C. § 506(a) to bifurcate the claim into secured and unsecured components.
Example: If the collateral is worth $20,000 and the SBA EIDL loan balance is $150,000, the SBA holds a secured claim of $20,000 (the value of the assets) and an unsecured claim for the $130,000 deficiency.
Plan treatment: Rather than reinstating the original contract, the debtor can propose a non-consensual cram-down plan under 11 U.S.C. § 1191(b). The $20,000 secured claim is paid over time with appropriate cram-down interest, and the remaining $130,000 is treated as a general unsecured claim, receiving pro-rata distribution from the debtor's disposable income over a 3-to-5 year plan period. Any unpaid unsecured balance is discharged under 11 U.S.C. § 1192.
In Side Yard Public House, Inc. and Milovan, Inc., No. 25-04126 (Bankr. S.D. Cal. June 26, 2026), a bankruptcy court in the Southern District of California confirmed an Amended Subchapter V Plan classifying SBA COVID EIDL loan claims into secured and unsecured classes. The plan was confirmed on a consensual basis under 11 U.S.C. § 1191(a), based on SBA ballots cast in favor of the plan with proper DOJ/SBA authorization. The court noted this was the first known instance of the SBA voting in a Subchapter V plan in that district.

The Guarantor Problem
While the LLC can use Subchapter V to modify, reinstate, or strip down the EIDL debt, the corporate filing does not automatically protect or reinstate the position of a personal guarantor (required on EIDL loans exceeding $200,000).

The automatic stay is entity-specific. The filing triggers the automatic stay under 11 U.S.C. § 362(a) for the LLC only. It does not extend to non-debtor guarantors.
Treasury cross-servicing continues regardless. If the loan has already defaulted and been referred to Treasury for cross-servicing or the Treasury Offset Program (TOP), the government can — and will — continue administrative wage garnishments, Social Security offsets, and federal tax refund seizures against the individual guarantor, despite the LLC's pending Subchapter V case.
No non-debtor discharges. Following the Supreme Court's ruling in Harrington v. Purdue Pharma L.P., non-consensual third-party releases in a Chapter 11 plan are strictly prohibited. The LLC's Subchapter V plan cannot be used to force a release or modification of the individual owner's personal guarantee without the SBA's express consent.

Resolving Guarantor Exposure
To address the guarantor's exposure alongside the LLC's reinstatement or cram-down, two mechanisms are generally available:

Parallel individual bankruptcy. The individual files a concurrent Chapter 7, Chapter 13, or Subchapter V case personally to discharge or manage the guarantee liability — effectively piggybacking on the asset valuations established in the corporate Subchapter V case.
Consensual post-petition settlement. Propose an out-of-court administrative settlement or Offer in Compromise (OIC) directly with the SBA/Treasury, using new value (such as third-party funds or exempt personal assets) to buy out the guarantee, structured conditionally upon confirmation of the LLC's Subchapter V plan.

Bottom line: If a Subchapter V plan is confirmed, the personal guarantor remains fully liable for the entire deficiency or unpaid balance of the EIDL loan, absent a separate workout with the SBA or Treasury, or a bankruptcy filing by the guarantor. Confirmation of a Subchapter V plan that alters, reduces, or discharges the LLC's liability does not alter or discharge the liability of a third-party non-debtor guarantor.
 

SBA EIDL Loans to Nonprofits: Workout Strategies, Treasury Risk, and Bankruptcy Options

At Shenwick & Associates, we are seeing a sharp increase in nonprofit borrowers seeking relief from COVID-19 Economic Injury Disaster Loans (EIDL). Unlike traditional commercial workouts, there is no standardized SBA workout program for nonprofit EIDL borrowers. The result is an opaque, discretionary process that requires a disciplined, well-documented approach.
This post outlines the available paths: out-of-court workouts with the SBA, Treasury referral issues, and bankruptcy as a last resort.

I. Statutory Framework and Loan Characteristics
EIDL loans were issued under 15 U.S.C. § 636(b)(2). For nonprofit entities, these loans typically:
Did not require personal guarantees (contrast with for-profit borrowers  with SBA EIDL loans over $200,000.00)
May or may not be secured, depending on loan size and documentation.
Once in default, the SBA has authority to pursue administrative collection, including referral to Treasury for offset under 31 U.S.C. § 3716.

II. No Formal “Workout Program” — Practical Reality
There is no codified EIDL modification program. Instead:
Borrowers must request relief directly from SBA servicing.
The SBA’s institutional position is to seek full repayment.
Concessions are discretionary and heavily documentation-driven.
Despite this, the SBA has continued to consider hardship-based modifications prior to Treasury referral.

III. Core Workout Strategy (Pre-Treasury)
The primary opportunity is an out-of-court loan modification.
Required submission typically includes:
Current financial statements (balance sheet and P&L).
Cash flow projections.
Last three years of IRS Form 990.
Board resolution authorizing negotiations.
Narrative explaining financial distress and mission impact.
Effective requests include:
Temporary reduced payments.
Interest-only periods.
Six-month review/reset periods.
Re-amortization where permitted.
The key leverage point is demonstrating that enforced collection will impair a functioning public-benefit mission.

IV. Distressed but Viable Nonprofits: Structured Workout Package
Where the nonprofit is insolvent but operational, a formal workout package should be submitted:
Narrative:
Cause of revenue decline.
Current programming and beneficiaries served.
Public harm resulting from liquidation.
Financials:
Three years of Form 990.
Current balance sheet and income statement.
Cash flow projections.
Settlement Proposal:
Lump-sum payment (often donor-funded).
Discounted payoff.
Structured settlement over time.

V. Treasury Referral: Escalated Risk
Recent SBA activity reflects aggressive referral of delinquent EIDL loans to Treasury.
Consequences include:
Administrative offset (tax refunds, federal payments).
Additional fees and penalties.
Loss of direct negotiation access with SBA servicing.
Critical objectives at this stage:
Obtain and verify the Treasury balance.
Challenge improper fees or accounting errors.
Attempt to recall or return the loan to SBA servicing.

VI. Bankruptcy Considerations
When workouts fail, bankruptcy becomes the final option.
Chapter 11:
Allows nonprofit reorganization and continued operations.
SBA debt can be restructured through a plan.
Chapter 7:
Provides liquidation.
EIDL obligations are dischargeable as unsecured federal debt.
Secured collateral, if any, will be administered for the benefit of the SBA.
Unlike for-profit borrowers, the absence of personal guarantees limits guarantor exposure.

Early engagement with SBA servicing materially improves outcomes and can prevent a referral to Treasury.

A structured, evidence-based submission is essential.

Treasury referral significantly reduces flexibility.

Bankruptcy remains a viable but last-resort tool, particularly where mission preservation is not feasible.

Shenwick & Associates continues to advise nonprofit borrowers navigating these issues, with a focus on pre-Treasury resolution and strategic positioning for compromise.

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! & creditors in Bankruptcy cases

Pre-Bankruptcy Planning: What's Permitted and What Will Get You in Trouble

 

Pre-Bankruptcy Planning: What's Permitted and What Will Get You in Trouble By James (Jim) Shenwick, Esq. | jshenwick@gmail.com | 917-363-3391 | Bankruptcy Attorney | Scarsdale, NY

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One of the most common questions I get from clients headed toward bankruptcy is: "Can I give my house to my sister before I file?" or "Can I sell my car to my brother for $1,000?"
The short answer: Pre-bankruptcy planning is legal. Fraudulent transfers are not. The line between the two is where most people get into trouble.

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What the Bankruptcy Code Permits
Debtors may engage in pre-bankruptcy planning. Converting non-exempt assets into exempt ones — paying down a mortgage on a homestead, funding an exempt retirement account, purchasing tools of the trade — are recognized strategies courts have upheld.
What the Code prohibits is transferring property for nothing, or for far less than it is worth, to put it beyond creditors' reach. Chapter 7 Trustees have powerful avoidance tools to reverse exactly those moves.
Under 11 U.S.C. § 548, a Trustee can avoid transfers made within two years of filing if the debtor received less than reasonably equivalent value while insolvent. State fraudulent transfer law, incorporated through 11 U.S.C. § 544(b), can extend that look-back period to four to six years, depending on the state.

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A Recent Case That Draws the Line
In re Albrecht, from the United States Bankruptcy Court for the Eastern District of North Carolina, illustrates precisely where pre-bankruptcy planning crosses into fraudulent transfer territory.
The Facts
Lucas Albrecht was insolvent and approaching a Chapter 7 filing. He co-owned a Raleigh home valued at $420,000 with his domestic partner, Kirsten Moore, held as joint tenants. His half-interest was exposed to his individual creditors.
Under North Carolina law, property held as tenants by the entirety — available only to married couples — is shielded from the individual debts of either spouse. Albrecht and Moore married. The following day, they re-deeded the property from joint tenancy to tenancy by the entirety. Weeks later, Albrecht filed Chapter 7.
The Chapter 7 Trustee moved to void the transaction. The court agreed — on two independent grounds.

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Ground One: Constructive Fraudulent Transfer
Constructive fraud requires no proof of bad intent. The Trustee must establish only:
1.     A transfer occurred;
2.     The debtor was insolvent; and
3.     The debtor received less than reasonably equivalent value.
The court held the transfer was constructively fraudulent as a matter of law.

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Ground Two: Actual Fraudulent Transfer
The court also found actual fraudulent intent — that Albrecht acted with intent to hinder, delay, or defraud creditors. Because debtors rarely document that intent, courts apply the "badges of fraud" analysis.
The badges present here:

• Transfer to an insider — a spouse married one day before the re-deeding

• Debtor retained possession and control after the transfer

• Substantially all non-exempt assets were transferred

• Debtor was insolvent at the time of transfer

• Less than reasonably equivalent value was received

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What This Means for Pre-Bankruptcy Planning
Legitimate pre-bankruptcy planning exists and is well-established. Paying down a mortgage, contributing to a 401(k), or purchasing exempt personal property can be entirely appropriate — provided it is done in good faith, without actual intent to defraud, and as far in advance of filing as possible. Timing matters enormously.
What is not permitted:

• Gifting property to a family member or friend

• Selling an asset to an insider at a steep discount

• Restructuring asset ownership to put it beyond creditor reach on the eve of bankruptcy, without providing reasonably equivalent value to the estate in return

Albrecht is particularly instructive because it involved a legally recognized ownership form — tenancy by the entirety — that would have been entirely valid had it predated the financial distress. The problem was timing and purpose: the conversion occurred the day after the wedding, weeks before filing, while Albrecht was already insolvent, and the sole purpose was to remove the asset from creditor reach.

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The Trustee's Avoidance Powers Are Broad
Chapter 7 Trustees use their avoidance powers routinely. The federal look-back window is two years under § 548. State fraudulent transfer statutes — available to Trustees through § 544(b) — reach back up to six years. Trustees scrutinize real property transfers, deed changes, and asset dispositions made in the period leading up to a filing.

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Bottom Line
Pre-bankruptcy planning is a legitimate part of bankruptcy practice. But it must be done carefully and timed properly, with full understanding of the avoidance rules. Any transfer of significant value — to a family member, a friend, or a third party at below-market price — made while the debtor is insolvent and on the eve of bankruptcy is a target. A legal structure (a deed, a sale, even a marriage) does not insulate the transaction.

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James (Jim) Shenwick is a bankruptcy attorney in New York representing individuals and businesses in Chapter 7 and Chapter 11 proceedings, creditor/debtor disputes, and bankruptcy litigation.
Jim Shenwick, Esq. | 917-363-3391 | jshenwick@gmail.com
Schedule a call
Please click the link to schedule a telephone call with me.
https://calendly.com/james-shenwick/15min
 
We help individuals and businesses with too much debt — and creditors in bankruptcy cases.

SBA EIDL Loan Defaults: What Small Business Borrowers Need to Know

 

SBA EIDL Loan Defaults: What Small Business Borrowers Need to Know

 In these times of high gasoline and diesel prices and high interest rates, many  small business owners are facing difficulty in repaying SBA Economic Injury Disaster Loans (EIDL) received during the COVID-19 pandemic. 

 Background

The SBA issued approximately $378 billion in EIDL loans to small businesses during the pandemic. Based on our experience, approximately 70% of borrowers have defaulted or will default on their repayment obligations. At Shenwick & Associates, we have been contacted by or have represented over 250 borrowers who have defaulted on SBA EIDL loans. Those loans ranged from $20,000 to $2,000,000. Loans exceeding $200,000 required a personal guarantee from the principal borrower, and interest rates were approximately 3% to 3.2%.

Previously, borrowers experiencing financial hardship could apply for a loan modification that reduced their required monthly payment to 10% of the scheduled amount for a six-month period. That hardship payment program has since ended. Borrowers who are more than 90 days delinquent are now being referred to the U.S. Department of the Treasury for collection. As a precursor to referral, the SBA issues a 60-day demand letter to borrowers who are more than 60 days past due, advising that failure to cure the delinquency will result in referral to Treasury for collection action.

 Treasury Collection Remedies

Once a loan is referred to Treasury, the following collection tools become available:

1.    Seizure of federal tax refunds owed to the defaulted borrower

2.    Offset of up to 15% of Social Security payments for individual borrowers or guarantors

3.    Garnishment of up to 15% of wages of individual borrowers or guarantors

4.    Seizure of federal payments owed to the borrower, including payments to defense contractors, Medicaid reimbursements, and payments to medical providers serving Medicaid patients

In addition, a 30% penalty is assessed on the outstanding loan balance upon referral to Treasury. Treasury has also engaged five collection agencies to pursue collection action on referred loans.

 Comments and Observations from Jim Shenwick

1.    Act before referral to Treasury. Borrowers who have defaulted or are struggling to meet their payment obligations should contact the SBA promptly to explore a workout arrangement. Resolving the default at the SBA level avoids both the 30% penalty and the more aggressive collection mechanisms available to Treasury.

2.    Recall from Treasury is extremely difficult. Once a loan has been referred from the SBA to Treasury, it is very difficult — as a practical matter — to have the loan recalled. Proactive engagement with the SBA is far preferable to attempting to unwind a Treasury referral.

3.    Personal guarantees add significant complexity. If the loan exceeded $200,000 and an individual provided a personal guarantee, the matter becomes considerably more complex. Any workout must address the obligations of both the borrower entity and the individual guarantor.

4.    Tax consequences for LLC members. If the loan was made to a pass-through entity such as a limited liability company and the loan balance is discharged or forgiven, the LLC members may recognize ordinary income under Section 108 of the Internal Revenue Code. Treasury will issue a Form 1099-C to the LLC members reflecting the cancellation of debt income.

5.    Exercise caution with three-year repayment plans. The collection agencies retained by Treasury are actively promoting three-year repayment workout arrangements. In our experience, these plans are often economically unworkable for most borrowers and should be carefully evaluated — ideally with legal counsel — before any agreement is signed.

6.    Ten-year repayment plans are available from Treasury. Treasury will offer eligible defaulted borrowers a 10-year repayment plan; however, both the borrower and any guarantor must provide extensive financial disclosure and documentation as a condition of approval.

7.    Offers in compromise remain elusive with the SBA and/or Treasury 

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Borrowers and guarantors who have defaulted on SBA EIDL loans are encouraged to contact Jim Shenwick, Esq. to discuss their situation, available options, and strategy.

📞 917-363-3391 📧 jshenwick@gmail.com 📅 Schedule a 15-minute telephone consultation

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

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

SBA EIDL Loan Successfully Recalled from Treasury 4/27/26

 

SBA EIDL Loan Successfully Recalled from Treasury 4/27/26

Jim Shenwick, Esq. is pleased to announce a significant victory on behalf of a client: the successful recall of a defaulted SBA EIDL loan from the U.S. Department of Treasury back to the SBA.

The loan in question had an outstanding balance of $212,000 and was personally guaranteed by the borrower. By securing the recall, the client avoided a substantial 30% penalty and all associated costs that come with Treasury-level collection.

How We Achieved This Result

The client had a compelling set of facts working in their favor. They were able to demonstrate that they never received the required 60-Day Default Notice from the SBA, and they had a documented medical condition that further supported their case.

Upon being retained, we moved quickly. Under our guidance, the client sent targeted correspondence — both emails and formal letters — directly to the Treasury and the SBA. The client also reached out to their Congressional representative, who contacted the SBA on their behalf.

Last Friday, the SBA notified the client by email that, following a thorough review of the file, the loan had been recalled from Treasury back to the SBA. The client may now resume making payments directly to the SBA, avoiding the severe consequences of Treasury-level default.

The client was thrilled — and so were we.

What This Means for Other Borrowers

These cases are challenging to pursue and require the right combination of facts, documentation, and strategy. However, this outcome demonstrates that a recall from Treasury to the SBA is achievable with the proper approach.

If you have an SBA EIDL loan that has been referred to the Department of Treasury, don't wait. Contact us today to discuss your options.

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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/15Please click the link to schedule a telephone call with me. 

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

We help individuals and businesses manage overwhelming debt, and represent creditors in bankruptcy cases

SBA EIDL Loan Defaults: What Small Business Borrowers Need to Know

 SBA EIDL Loan Defaults: What Small Business Borrowers Need to Know

 The New York Times recently published an informative article titled "Repaying COVID-Era Loans Is a Big Burden on Small Business" (March 30, 2026), highlighting the serious difficulties small business owners are facing in repaying SBA Economic Injury Disaster Loans (EIDL) received during the COVID-19 pandemic. The article reinforces what we have been observing firsthand at Shenwick & Associates.

 Background

The SBA issued approximately $378 billion in EIDL loans to small businesses during the pandemic. Based on our experience, approximately 70% of borrowers have defaulted or will default on their repayment obligations. At Shenwick & Associates, we have been contacted by or have represented over 250 borrowers who have defaulted on SBA EIDL loans. Those loans ranged from $20,000 to $2,000,000. Loans exceeding $200,000 required a personal guarantee from the principal borrower, and interest rates were approximately 3% to 3.2%.

Previously, borrowers experiencing financial hardship could apply for a loan modification that reduced their required monthly payment to 10% of the scheduled amount for a six-month period. That hardship payment program has since ended. Borrowers who are more than 90 days delinquent are now being referred to the U.S. Department of the Treasury for collection. As a precursor to referral, the SBA issues a 60-day demand letter to borrowers who are more than 60 days past due, advising that failure to cure the delinquency will result in referral to Treasury for collection action.

 Treasury Collection Remedies

Once a loan is referred to Treasury, the following collection tools become available:

1.    Seizure of federal tax refunds owed to the defaulted borrower

2.    Offset of up to 15% of Social Security payments for individual borrowers or guarantors

3.    Garnishment of up to 15% of wages of individual borrowers or guarantors

4.    Seizure of federal payments owed to the borrower, including payments to defense contractors, Medicaid reimbursements, and payments to medical providers serving Medicaid patients

In addition, a 30% penalty is assessed on the outstanding loan balance upon referral to Treasury. Treasury has also engaged five collection agencies to pursue collection action on referred loans.

 Comments and Observations from Jim Shenwick

1.    Act before referral to Treasury. Borrowers who have defaulted or are struggling to meet their payment obligations should contact the SBA promptly to explore a workout arrangement. Resolving the default at the SBA level avoids both the 30% penalty and the more aggressive collection mechanisms available to Treasury.

2.    Recall from Treasury is extremely difficult. Once a loan has been referred from the SBA to Treasury, it is very difficult — as a practical matter — to have the loan recalled. Proactive engagement with the SBA is far preferable to attempting to unwind a Treasury referral.

3.    Personal guarantees add significant complexity. If the loan exceeded $200,000 and an individual provided a personal guarantee, the matter becomes considerably more complex. Any workout must address the obligations of both the borrower entity and the individual guarantor.

4.    Tax consequences for LLC members. If the loan was made to a pass-through entity such as a limited liability company and the loan balance is discharged or forgiven, the LLC members may recognize ordinary income under Section 108 of the Internal Revenue Code. Treasury will issue a Form 1099-C to the LLC members reflecting the cancellation of debt income.

5.    Exercise caution with three-year repayment plans. The collection agencies retained by Treasury are actively promoting three-year repayment workout arrangements. In our experience, these plans are often economically unworkable for most borrowers and should be carefully evaluated — ideally with legal counsel — before any agreement is signed.

6.    Ten-year repayment plans are available from Treasury. Treasury will offer eligible defaulted borrowers a 10-year repayment plan; however, both the borrower and any guarantor must provide extensive financial disclosure and documentation as a condition of approval.

7.    Offers in compromise remain elusive. The Times article references an SBA spokesman who indicated that the agency is accepting offers in compromise on defaulted loans. However, based on our experience representing over 250 borrowers, no client has yet been able to successfully negotiate or obtain an accepted offer in compromise on a defaulted SBA EIDL balance, although that hopefully will change.

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Borrowers and guarantors who have defaulted on SBA EIDL loans are encouraged to contact Jim Shenwick, Esq. to discuss their situation, available options, and strategy.

📞 917-363-3391 📧 jshenwick@gmail.com 📅 Schedule a 15-minute telephone consultation

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

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

 

Shenwick & Associates Achieves Favorable Settlement in In re Celsius Preference Avoidance Action — Default Judgment Vacated

 

Shenwick & Associates Achieves Favorable Settlement in In re Celsius Preference Avoidance Action — Default Judgment Vacated

As regular readers of this blog are aware, Shenwick & Associates has developed a recognized legal specialty in cryptocurrency-related matters, including the defense of preference avoidance actions arising out of the In re Celsius Network LLC bankruptcy proceedings.

To date, our firm has successfully resolved numerous Celsius preference avoidance actions on favorable terms for defendants named in adversary proceedings. We are pleased to report a recent matter that underscores the importance of prompt legal intervention, even where a defendant's procedural posture has been significantly compromised.

Background

Our firm was recently retained by a Celsius adversary proceeding defendant domiciled in Europe who had been sued for in excess of $660,000. Prior to retaining counsel, our client failed to respond to multiple communications from Celsius and did not file a timely Answer to the Complaint. As a result, a Default Judgment was entered against him in both the United States and in the relevant European jurisdiction.

Our Representation and Result

Following entry and service of the Default Judgment, our client retained James Shenwick, Esq. to seek vacatur of the Default Judgment and to negotiate a resolution of the underlying claim. Our firm promptly moved to vacate the Default Judgment, filed a responsive Answer to the Complaint, and engaged in substantive settlement negotiations with opposing counsel.

We are pleased to announce that the matter was resolved for approximately 8% of the original claim amount — a result that represents an extraordinary outcome given the procedural posture of the case at the time of our retention. Notably, the client was also able to fund the settlement using cryptocurrency, providing additional flexibility in satisfying the agreed-upon terms.

Contact Shenwick & Associates

If you have been named as a defendant in a Celsius preference avoidance action — whether you have already received a Default Judgment or have simply been served with a Complaint — we strongly urge you to contact our office promptly. Delay can have significant legal and financial consequences.

James Shenwick, Esq.

Shenwick & Associates

📞 917-363-3391

✉️ jshenwick@gmail.com

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Shenwick & Associates counsels individuals and businesses confronting significant debt obligations, as well as creditors navigating bankruptcy proceedings.