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

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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

To schedule a telephone consultation, please click the link below:

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

Slutty Vegan’s owner couldn’t pay back a $1M Covid-era disaster loan (SBA EIDL loan). She isn’t alone

 

Slutty Vegan’s owner couldn’t pay back a $1M Covid-era disaster loan. 

She isn’t alone according to an article at  bizwoman, which can be found at 

   https://www.bizjournals.com/boston/bizwomen/news/latest-news/2026/03/covid-era-eidl-loan-program-debt-bankruptcy.html?page=all

Jim Shenwick, Esq may have been able to help her!

Clients or their advisors with questions about SBA EIDL loan defaults 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! & creditors in Bankruptcy cases

Small Business Bankruptcy & Subchapter V

Is Subchapter V Bankruptcy Right for Your Small Business?

By Jim Shenwick, Esq. | Shenwick & Associates

At Shenwick & Associates, we are receiving an increasing number of calls from businesses in financial distress. Whether their liabilities exceed their assets, or they lack sufficient cash flow to service debt and cover operating expenses, these businesses are facing difficult decisions.

Three Options for a Financially Distressed Business

Businesses in financial difficulty generally have three options:

1. Do nothing and close the business;

2. File a Chapter 7 bankruptcy and have the business liquidated by a Chapter 7 Bankruptcy Trustee; or

3. File for Chapter 11 bankruptcy. Within Chapter 11, there are two paths: a traditional Chapter 11 filing, or a Subchapter V small business bankruptcy filing.

Why Traditional Chapter 11 Is Often Not the Answer

For most small businesses, traditional Chapter 11 is too complicated, costly, and time-consuming. Many businesses that file for Chapter 11 ultimately have their cases converted to a Chapter 7 liquidation ( leaving them no better off than if they had simply closed) or the case is dismissed.

The Advantages of Subchapter V

Subchapter V was designed specifically to give small businesses a more accessible and affordable path through bankruptcy. Key advantages include:

• No U.S. Trustee (UST) fees. Unlike traditional Chapter 11, Subchapter V debtors are not required to pay quarterly UST fees.

• No Absolute Priority Rule. The business owner is not required to pay creditors in strict priority order before retaining an ownership interest.

• Owner may retain the business. If a Plan of Reorganization is confirmed, the debtor can retain ownership of the business.

• Impaired creditors need not approve the Plan. The Plan can be confirmed without the affirmative vote of impaired creditors, provided certain conditions are met.

• No Disclosure Statement required. Unlike traditional Chapter 11, a separate Disclosure Statement does not need to be filed with the Court.

• The Plan may modify the rights of secured creditors holding claims secured by the debtor’s principal residence, which is a significant tool not available in traditional Chapter 11.

Key Requirements of Subchapter V

To qualify and operate under Subchapter V, a business must meet several important requirements:

• At least 50% of the debtor’s total debt must be business-related debt.

• A Plan of Reorganization must be filed within 90 days of the bankruptcy filing.

• The debtor must commit all projected disposable income to Plan payments.

While the above is a brief overview, Subchapter V offers meaningful benefits for eligible small businesses seeking a viable path forward without the burden and expense of a traditional Chapter 11 case. Every business situation is unique, and a thorough analysis is required to determine whether Subchapter V is the right fit.

Contact Us

If you are a business owner, client, or advisor with questions about business bankruptcy or Subchapter V, please contact Jim Shenwick, Esq. for a consultation.

Jim Shenwick, Esq.  |  Shenwick & Associates

Phone: 917-363-3391   Email: jshenwick@gmail.com

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We help individuals and businesses with too much debt, as well as creditors in bankruptcy cases.

New York Post article about Saks Chapter 11bankruptcy bankruptcy filing & Jim Shenwick, Esq Quotee

 My law firm is representing a number of jewelry vendors who have sold goods to Saks, prior to their Chapter 11 bankruptcy filing. I am proud to announce that I was quoted in a New York Post article on the Saks Chapter 11 bankruptcy filing article.

A link to the article can be found at https://nypost.com/2026/02/18/business/saks-and-neiman-low-on-luxury-goods-as-fashion-labels-fret-over-court-battle-with-amazon/

Clients or their advisors who have questions about being paid on their Saks receivables prior to the bankruptcy filing or about being paid for goods shipped after the Saks bankruptcy filing 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! & creditors in Bankruptcy cases

Defaulted SBA EIDL Loans & Transfer to Department of Treasury

 

Many clients contact us after they have defaulted on their SBA EIDL loan and it is transferred to the Department of Treasury (“Treasury” ) or Treasury Offset Program (TOP) for collection.  Seven payments must have been missed for the loan to be transferred to Treasury and when the loan is transferred, a 30% penalty is added to the loan balance.

What will occur, and what can a client do when the loan is sent to Treasury by the SBA?

I Borrowers can seek a “recall” back from Treasury to the SBA in limited circumstances. 

A. Procedural/notice defects: If the borrower never received the required 60‑day notice from SBA before TOP referral (e.g., bad address, no notice in portal), you may be able to argue the referral was improper and request recall based on lack of proper notice. Also if you made your payments or were in default for fewer that 7 months you may have grounds to recall the loan. 

B. Hardship: In some cases, documented hardship (permanent disability, closure of the business, bankruptcy, disaster, or offset of income that would create an inability to meet basic living expenses) can be used to request recall or, at minimum, a suspension or limitation of offsets.

C. Intent and ability to cure: If the borrower can promptly cure arrears and credibly stay current going forward, SBA may agree to pull the loan back for servicing rather than keep it at Treasury.

In our experience, recall is very hard to do and we will not handle those cases for clients. 

II What can Treasury do to collect the defaulted loan?

Once the debt is at Treasury (usually via the Treasury Offset Program, or “TOP”), the government adds a 30% penalty  fee to  the outstanding balance increasing the amount due.

Treasury or TOP can offset federal payments, including federal income tax refunds, some state tax refunds (in participating states), and certain federal payments such as 15% of  Social Security benefits payable to an individual borrower or a guarantor of a defaulted SBA loan. 

Those businesses that do work for the Federal government, may see a portion of the receivables due from the Federal Government taken by TOP to repay the defaulted loan. 

Treasury can administratively garnish wages from an individual borrower or guarantor without first obtaining a civil judgment, subject to statutory notice and hearing requirements.

The outstanding debt can be reported to credit bureaus, negatively affecting personal and/or business credit.

Treasury can refer the matter to private collection agencies and, in certain cases, to the Department of Justice for litigation to reduce the debt to judgment and pursue enforcement remedies (e.g., execution, liens, etc.).

Where there is a personal guaranty for the defaulted loan (COVID EIDLs over $200,000.00), the government can pursue the guarantor and reach personal assets, subject to usual exemptions and procedural protections.

III. What can a  borrower do after the defaulted loan has been referred to Treasury?

Negotiate with Treasury (or its contractors)

If recall is not viable, your main tools are negotiation and structured resolution under Treasury’s collection framework. Forms will need to be filled out providing detailed financial information to the Treasury or the collection agencies. 

Installment agreements: Treasury (or its collection contractor) may accept a monthly payment arrangement based on verified financial information, sometimes in conjunction with partial resumption or limitation of offsets.

Lump-sum compromise/Settlement: Treasury and DOJ have compromise authority for federal debts; in practice, compromises generally require showing inability to pay in full, limited assets, and that the compromise yields more than enforced collection is likely to produce.

Suspension or modification of offsets: For debtors in financial hardship, TOP has procedures to challenge the offset or request suspension/reduction, typically via written objection and documentation (income/expense, medical issues, etc.).

IV. Bankruptcy: In an appropriate case, a business, individual borrower or guarantor may want to file bankruptcy to stay collection activity, discharge the debt or seek repayment thru a Bankruptcy plan, approved by the Bankruptcy Court. 

V. Use of hardship and “uncollectibility” status

Where the debtor is effectively judgment‑proof one can argue for “currently not collectible” status with limited or no active collection measures, based on age, disability, income below certain thresholds, or absence of non‑exempt assets.

Borrowers or their advisors who have questions about defaulted SBA EIDL Loans and their transfer to the Department of Treasury 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!

Shipping to Saks, Neiman Marcus, or Bergdorf Goodman After the Chapter 11 Filing: What Vendors Need to Know

Many clients have contacted Shenwick & Associates asking whether it is safe to ship goods to Saks following its Chapter 11 bankruptcy filing.

The real concern is whether vendors will be paid for goods shipped after the bankruptcy filing.

In most Chapter 11 cases, the answer is yes—shipping goods post-petition is generally safe, particularly where the debtor has obtained Debtor-in-Possession (DIP) financing.

Here are the key considerations:

Post-petition shipments receive priority payment status. Vendors who supply goods after the bankruptcy filing typically hold administrative expense claims under Bankruptcy Code §503(b)(1)(A). These claims must generally be paid in full as a condition to confirming a Chapter 11 plan under §1129(a)(9), giving them priority over pre-petition unsecured claims.

DIP financing supports ongoing operations. DIP financing provides liquidity so the debtor can continue operations and pay ordinary-course expenses, including post-petition vendor invoices. Courts often authorize payment of undisputed post-petition invoices in the ordinary course.

Chapter 11 encourages vendors to continue shipping. The purpose of Chapter 11 is to allow a debtor to reorganize while continuing business operations. The Bankruptcy Code structure incentivizes vendors to continue supplying goods so the business can survive.

Continuing shipments may preserve business relationships. Vendors who continue supplying merchandise maintain relationships with buyers and may offset losses from pre-petition shipments through continued profitable sales. Vendors who refuse to ship risk losing shelf space to competitors.

Vendors are not required to ship post-petition. The Bankruptcy Code does not obligate vendors to continue selling goods after the filing; the decision remains a business judgment.

Payment is not absolutely guaranteed. While administrative claims are entitled to priority, risk remains if the case later converts to liquidation and administrative expenses exceed available assets.

Critical Vendor or “Doctrine of Necessity” relief may be available. Vendors supplying unique or essential goods may seek treatment as a Critical Vendor, allowing payment of certain pre-petition amounts if the court finds such payments necessary to preserve operations. While beneficial, this status is not required for vendors to safely ship post-petition goods.

In most circumstances, vendors can safely continue shipping goods to a Chapter 11 debtor like Saks, especially where DIP financing is in place.

Vendors or advisors with questions regarding shipping goods or protecting claims in the Saks bankruptcy are welcome to contact us.

Jim Shenwick, Esq

Shenwick & Associates

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. 

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The Saks, Bergdorf Goodman, Neiman Marcus Bankruptcy Filing and the Case of the Missing or Incomplete Consignment Agreement

 The Saks, Bergdorf Goodman, Neiman Marcus Bankruptcy Filing and the Case of the Missing or Incomplete Consignment Agreement

Many clients have contacted my law firm explaining that they are in the jewelry business and shipped jewelry, diamonds, or other high-value items to Saks on a “consignment” basis.

When I ask for the Consignment Agreement, what I usually receive—if anything at all—is a receipt or invoice stamped “Consignment” in the upper right-hand corner.
I then ask for a copy of the UCC-1 financing statement and the PMSI notice sent to other inventory secured creditors, and I am often met with a glazed look and the response: “That’s not how it’s done on 47th Street.”

Unfortunately, in a Chapter 11 case, custom and practice do not trump the Uniform Commercial Code.

Under UCC Article 9, perfected consignments are treated as secured transactions.
If the consignment is not properly perfected, the goods are deemed property of the bankruptcy estate and are subject to the claims of the debtor’s other creditors including secured  inventory lenders, DIP lenders and the Bankruptcy Trustee.

The consignor, instead of being a secured creditor, is treated as a general unsecured creditor.

Article 9 does provide the consignor with a PMSI in consigned inventory—but only if it is properly perfected.

This generally requires filing a UCC-1 financing statement and sending timely PMSI notices, before delivery of the goods, with renewals every five years.

In Chapter 11, secured creditors are typically paid far more than unsecured creditors, making these steps critical.

Creditors involved with the  Saks, Bergdorf Goodman, Neiman Marcus bankruptcy filing with questions about the treatment of their claims or consignment agreements should contact 

Jim Shenwick, Esq.

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

https://calendly.com/james-shenwick/15mPlease click the link to schedule a telephone call with me. 

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Shenwick & Associates

116 Plymouth Drive

Scarsdale, NY 10583

Work: 917-363-3391

Bankruptcy & Creditor Rights

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.
•  

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!