EIDL Defaulted Loans

 An EIDL loan is one issued by the SBA for economic injury development. These loans were issued after PPP loans to businesses that had suffered economic injury.  However, unlike PPP loans, these loans must be repaid by borrowers.

 Many clients are calling about defaulted EIDL SBA Loans, the consequence of those defaults and remedies for those defaults. 

Shenwick & Associates has experience dealing with defaulted SBA loans and we have published 3 articles on our blog regarding these defaults. 

One post involves EIDL loans and bankruptcy, which can be found at http://shenwick.blogspot.com/2022/07/eidl-loan-workouts-and-bankruptcy.html

A Second post pertains to defaulted EIDL loans and the SBA Offer in Compromise program.  That post can be found at http://shenwick.blogspot.com/2022/07/eidl-loans-and-sba-offer-in-compromise.html

and 

A Third post is about EIDL loan defaults and document review for those defaults. That post can be viewed at http://shenwick.blogspot.com/2022/07/eidl-loan-default-document-review.html

Clients or professionals with questions about defaulted EIDL loans should contact Jim Shenwick, Esq.   jshenwick@gmail.com   212-541-6224

FOR MORE BLOG POSTS ABOUT SBA EIDL LOANS SEE:

EIDL LOAN WORKOUTS AND BANKRUPTCY

https://shenwick.blogspot.com/2022/07/eidl-loan-workouts-and-bankruptcy.html

EIDL Loan Default Questions & Answers https://shenwick.blogspot.com/2022/10/eidl-loan-default-questions-answers.html EIDL LOAN DEFAULT DOCUMENT REVIEW, WORKOUT, BANKRUPTCY FILING & OFFER IN COMPROMISE https://shenwick.blogspot.com/2022/07/eidl-loan-default-document-review.html EIDL Defaulted Loans https://shenwick.blogspot.com/2022/07/eidl-defaulted-loans.html New Relief Program for SBA EIDL Borrowers Who are Having Difficulty Repaying EIDL Loans " Hardship Accommodation Plan" https://shenwick.blogspot.com/2023/05/new-relief-program-for-sba-eidl.html EIDL LOANS and SBA OFFER IN COMPROMISE PROGRAM https://shenwick.blogspot.com/2022/07/eidl-loans-and-sba-offer-in-compromise.html PPP & EIDL Fraud https://shenwick.blogspot.com/2022/08/ppp-eidl-fraud.html Better to connect-What small business owners need to know about repaying loans tied to pandemic relief from the SBA EIDL Loans https://shenwick.blogspot.com/2022/11/better-to-connect-what-small-business.html

EIDL LOAN DEFAULT DOCUMENT REVIEW, WORKOUT, BANKRUPTCY FILING & OFFER IN COMPROMISE

As many readers of our blog posts are aware, at Shenwick &Associates we have expertise in EIDL loan workouts, bankruptcy filings and offers in compromise, for defaulted EIDL loans

Recently we did a post on EIDL loans and bankruptcy, which can be found at http://shenwick.blogspot.com/2022/07/eidl-loan-workouts-and-bankruptcy.html 

and  a post on defaulted EIDL loans and the SBA Offer in Compromise program.  That post can be found at http://shenwick.blogspot.com/2022/07/eidl-loans-and-sba-offer-in-compromise.html

 When clients retain us with respect to defaulted EIDL loans, they often ask what documents they need to provide us for our review.

We have developed the following checklist of documents after doing workouts and bankruptcy filings for various types of debtors and creditors.

 Provided below is a list of  documents needed for business borrowers and another for individuals, who took out the EIDL loans personally or who guaranteed EIDLloans, which are in default.

BUSINESS BORROWER:

1. Recent Balance sheet for the business

2.  Recent Income statement for the business

3. Most recent Federal Tax Return 

4. EIDL Loan Documents

5. Property that was Collateral for EIDL Loan

6. Guarantees give for EIDL Loan 

7. Check registry and wires going back 90 days for the business

8. Bank statements for 90 days  and 

9. Executive Summary  regarding the company’s problems and  goals with respect to EIDL Loan

INDIVIDUAL BORROWER OR GUARANTOR:

1. List of property  you own (assets)

2. List of who you owe money or property to (liabilities)

3. After Tax Monthly Budget showing after tax income & personal and business expenses

4. Most recent tax return

5. List of obligations you personally guaranteed

6. Taxes owed, if any including the nature of the tax, the tax year and amount

7. Brief summary of your problem(s) and your goals

If you provide us with this information, we will be able to do an analysis regarding your best options with respect to the defaulted EIDL Loan, including a Workout,  Offer in Compromise, closing of the business or a bankruptcy filing.   

Additionally, we will advise the guarantor on their options and best course of action.

Jim Shenwick, Esq has handled thousands of workouts (out of court settlements) and over 500 bankruptcy filing for individuals and businesses. Jim Shenwick, Esq has an LLM in Taxation from NYU law school and he can also provide advice regarding relief of indebtedness issues. 

Jim Shenwick, Esq  jshenwick@gmail.com   212 541 6224   

FOR MORE BLOG POSTS ABOUT SBA EIDL LOANS SEE:

EIDL LOAN WORKOUTS AND BANKRUPTCY

https://shenwick.blogspot.com/2022/07/eidl-loan-workouts-and-bankruptcy.html

EIDL Loan Default Questions & Answers https://shenwick.blogspot.com/2022/10/eidl-loan-default-questions-answers.html EIDL LOAN DEFAULT DOCUMENT REVIEW, WORKOUT, BANKRUPTCY FILING & OFFER IN COMPROMISE https://shenwick.blogspot.com/2022/07/eidl-loan-default-document-review.html EIDL Defaulted Loans https://shenwick.blogspot.com/2022/07/eidl-defaulted-loans.html New Relief Program for SBA EIDL Borrowers Who are Having Difficulty Repaying EIDL Loans " Hardship Accommodation Plan" https://shenwick.blogspot.com/2023/05/new-relief-program-for-sba-eidl.html EIDL LOANS and SBA OFFER IN COMPROMISE PROGRAM https://shenwick.blogspot.com/2022/07/eidl-loans-and-sba-offer-in-compromise.html PPP & EIDL Fraud https://shenwick.blogspot.com/2022/08/ppp-eidl-fraud.html Better to connect-What small business owners need to know about repaying loans tied to pandemic relief from the SBA EIDL Loans https://shenwick.blogspot.com/2022/11/better-to-connect-what-small-business.html

FOR MORE BLOG POSTS ABOUT SBA EIDL LOANS SEE:

EIDL LOAN WORKOUTS AND BANKRUPTCY

https://shenwick.blogspot.com/2022/07/eidl-loan-workouts-and-bankruptcy.html

EIDL Loan Default Questions & Answers https://shenwick.blogspot.com/2022/10/eidl-loan-default-questions-answers.html EIDL LOAN DEFAULT DOCUMENT REVIEW, WORKOUT, BANKRUPTCY FILING & OFFER IN COMPROMISE https://shenwick.blogspot.com/2022/07/eidl-loan-default-document-review.html EIDL Defaulted Loans https://shenwick.blogspot.com/2022/07/eidl-defaulted-loans.html New Relief Program for SBA EIDL Borrowers Who are Having Difficulty Repaying EIDL Loans " Hardship Accommodation Plan" https://shenwick.blogspot.com/2023/05/new-relief-program-for-sba-eidl.html EIDL LOANS and SBA OFFER IN COMPROMISE PROGRAM https://shenwick.blogspot.com/2022/07/eidl-loans-and-sba-offer-in-compromise.html PPP & EIDL Fraud https://shenwick.blogspot.com/2022/08/ppp-eidl-fraud.html Better to connect-What small business owners need to know about repaying loans tied to pandemic relief from the SBA EIDL Loans https://shenwick.blogspot.com/2022/11/better-to-connect-what-small-business.html

EIDL LOANS and SBA OFFER IN COMPROMISE PROGRAM

In a recent blog post we discussed EIDL LOAN WORKOUTS AND BANKRUPTCY http://shenwick.blogspot.com/2022/07/eidl-loan-workouts-and-bankruptcy.html 

In this post we will discuss EIDL Loans and the SBA Offer in Compromise program (“OIC”).  

An offer in compromise is an offer by the borrower to pay less than the amount that is owed on the SBA loan, in consideration for the SBA considering the loan satisfied. The “compromise amount” must bear a reasonable relationship to the amount that could be recovered through “enforced collection proceedings”. 

Enforced collection proceedings are litigation or the lien and levying on collateralized assets by the SBA including bank account levies, wage garnishments, and liens on houses pledged as collateral.

Generally in an OIC, the business has closed and all business assets have been sold or abandoned. In rare cases, an OIC can  be filed while the business is open and operating.

The compromise amount should be paid in one lump-sum payment on a specified date, usually within 60 calendar days of the approval date. Rarely the OIC can be paid in installments.

Similar to an OIC for a tax obligation, the SBA Offer-In-Compromise is required when a borrower or guarantor is seeking to have their obligation released for less than the balance due after the business has closed.

What are the Requirements for an Offer in Compromise?

(1) The loan must be classified in liquidation status by the Lender or SBA;

(2) The borrower has not filed for bankruptcy;

(3) The full amount owed on the loan cannot be paid or recovered 

(4) Collection of the loan is not barred by a discharge in bankruptcy or the statute of limitations;

(5) The borrower has not engaged in fraud, misrepresentation, or other financial misconduct; and

(6) The compromise amount bears a reasonable relationship to the amount that could be recovered in a reasonable amount of time through enforced collection proceedings. 

After defaulting on the EIDL loan, when the loan is classified in liquidation status by the Lender or the SBA, the borrower will receive a  60 day demand notice from the SBA.

It is during this 60 day demand notice that a borrower typically files the OIC.

If a borrower takes no action the SBA can commence litigation, seize IRS tax refunds, take Social Security benefits or an individual's wages can be garnished. 

The OIC package is sent to the lender who will review it and  forward it to the SBA for further review and action.

What Documentation Must the Borrower Submit with the OIC?

(1) SBA Form 1150 (Offer in Compromise).

(2) SBA Form 770 (Financial Statement of Debtor) showing the borrower’s assets, liabilities, income, and expenses. 

(3) Statement of Personal History

(4) Borrower Consent to Verify Information

(5) IRS Form 4506-T (Request for Transcript of Tax Return);

(6) The borrower’s federal tax returns for the past two years

(7) If the loan involved personally guarantees, then 2 years of federal tax returns for the guarantor

(8) If a house was collateral for the loan, then a recent appraisal of the house and a mortgage statement showing the mortgage balance on the house, if applicable.

(9) A statement or explanation from the borrower stating why the loan cannot be repaid in full.

Timing:

The OIC process takes six months to one year.

Will the SBA accept a payment plan for an OIC?

The SBA prefers a lump sum payment, but they will also consider monthly payments from an individual. 

Note however, that the SBA will not issue a release, terminate a guaranty or release a lien on a house until all payments under the OIC are made. 

If your house is collateral for the loan, then the OIC offer must equal the equity in the house, which is determined by the fair market value of the house (based on a recent appraisal) less outstanding mortgages, less brokerage fees (if the house were sold), less your States homestead exemption and state and local transfer taxes.

Bankruptcy filing vs OIC

Clients will often ask us is it better to do an OIC or a bankruptcy filing? There is no correct answer and at Shenwick & Associates we do that analysis for clients.

At Shenwick & Associates we have done hundreds of workouts for clients and many bankruptcy filings for individuals and businesses.   

Clients having questions about the OIC process or bankruptcy should consult with Jim Shenwick, Esq.   jshenwick@gmail.com  212 541 6224  

FOR MORE BLOG POSTS ABOUT SBA EIDL LOANS SEE:

EIDL LOAN WORKOUTS AND BANKRUPTCY

https://shenwick.blogspot.com/2022/07/eidl-loan-workouts-and-bankruptcy.html

EIDL Loan Default Questions & Answers https://shenwick.blogspot.com/2022/10/eidl-loan-default-questions-answers.html EIDL LOAN DEFAULT DOCUMENT REVIEW, WORKOUT, BANKRUPTCY FILING & OFFER IN COMPROMISE https://shenwick.blogspot.com/2022/07/eidl-loan-default-document-review.html EIDL Defaulted Loans https://shenwick.blogspot.com/2022/07/eidl-defaulted-loans.html New Relief Program for SBA EIDL Borrowers Who are Having Difficulty Repaying EIDL Loans " Hardship Accommodation Plan" https://shenwick.blogspot.com/2023/05/new-relief-program-for-sba-eidl.html EIDL LOANS and SBA OFFER IN COMPROMISE PROGRAM https://shenwick.blogspot.com/2022/07/eidl-loans-and-sba-offer-in-compromise.html PPP & EIDL Fraud https://shenwick.blogspot.com/2022/08/ppp-eidl-fraud.html Better to connect-What small business owners need to know about repaying loans tied to pandemic relief from the SBA EIDL Loans https://shenwick.blogspot.com/2022/11/better-to-connect-what-small-business.html

EIDL LOAN WORKOUTS AND BANKRUPTCY

 EIDL LOAN WORKOUTS AND BANKRUPTCY 

Recently we have received many telephone calls and emails from clients regarding their default under EIDL Loans and EIDL Grants, from the SBA or related banks and their options with respect to those defaults.

In the way of background, EIDL (Economic Injury Disaster Loans)

and EIDL Grants were provided to small businesses to help them recover from the COVID-19 pandemic. 

EIDL loans were supposed to  used for working capital and operating expenses.     

EIDL loans are not forgivable and must be repaid.

EIDL Grants do not need to be repaid.

The maximum for EIDL Loans was $2 million. The interest rate on those loans was not to exceed 4%.The term was up to 30 years, with no prepayment penalty or fees

In SBA nomenclature, if a borrower does not make payment on an EIDL Loan, the loan can be Delinquent or go into Default. 

SBA regulations provide that  “Delinquent” means you’re behind on your SBA loan repayments, but your lender still believes you will be able to repay some, or all, of the loan amount

If a lender determines that you  will be unable to repay your loan, then you will be classified as a “Default”.

Delinquent on EIDL Loan:

In the typical EIDL loan, the lender will assess a late fee for failure to pay, contact you for repayment, restructure the loan, extend your loan over a longer length of time (to reduce monthly repayments), allow you to repay only the interest portion of your loan, or some blend of the above (typical loan workout strategies).

Lender’s will push for a payment  within 30 days of contacting you.

Default On EIDL Loans

If you repeatedly fail to make repayments and cannot reach an agreeable plan with your bank or the SBA, then your loan will go into default. 

Consequences of Default:

1. Any collateral (property) you pledged for the loan is at risk. Depending on applicable state law the lender has the  right to take the property and sell those assets to repay the loan.

2. Any parties or entities that guaranteed the loan can be required or sued to repay the loan balance.

3. The SBA will send you a demand letter, demanding that the loan be repaid. 

4. The SBA can sue you or the guarantor of the EIDL Loans. 

5. Your business and personal credit reports will show the default and your credit score will decline.

6. The SBA can lien and levy on federally held assets such as tax refunds

7. The loan default will be reported to the IRS and you may have to recognize income equal to the amount of the loan default, which is not repaid to the lender.

REMEDIES FOR AN EIDL LOAN DEFAULT:

1. Offer to pay some money towards settling the loan.

2. You can fill out an “Offer in Compromise” form and send it to an SBA Loan Officer,  which provides financial  information and the  amount that you can pay as a final and full payment to satisfy the loan.

3. Prepare for litigation.

4. Consider a bankruptcy filing  

GUARANTIES AND COLLATERAL FOR EIDL LOANS

1. EIDL loans of $25,000 or less do not require collateral or personal guarantees.

2. EIDL loans between $25,000 and $200,000, require collateral (UCC-1 and a Security Agreement)  but generally do not require personal guarantees. In case of a default with respect to loans of this size, collateral such as accounts receivable, inventory or equipment could be seized and sold to satisfy the debt.

3. EIDL loans greater than $200,000 require collateral and personal guarantees.

EIDL and Bankruptcy

Bankruptcy is a last resort for an individual or a business. However, an individual with an EIDL loan or a company that guaranted an EIDL loan can file for  chapter 7, 13 or 11 bankruptcy. Chapter 7 is a liquidation (the business closes), chapter 13 is a 3 to 5 year payment plan for individuals (not businesses) and chapter 11 is a reorganization or a liquidation for an individual or a business. 

A business that has an EIDL loan can file for  chapter 7 or 11 bankruptcy or chapter 11, Subchapter V bankruptcy (a form of chapter 11 bankruptcy for small businesses).

 EIDL loans can be discharged in a chapter 7 bankruptcy filing.   

Assets that were collateralized for an EIDL loan, such as equipment or accounts receivable would become the property of the Lender. 

Parties who guaranteed EIDL loans can be sued by the EIDL lender and they would need to do a workout (an out of court workout) or a bankruptcy filing.  

Clients or professionals with questions about EIDL loan workouts or bankruptcy filing  should contact Jim Shenwick, Esq   jshenwick@gmail.com  212 541 6224 

----------------

FOR MORE BLOG POSTS ABOUT SBA EIDL LOANS SEE:

EIDL LOAN WORKOUTS AND BANKRUPTCY

https://shenwick.blogspot.com/2022/07/eidl-loan-workouts-and-bankruptcy.html

EIDL Loan Default Questions & Answers https://shenwick.blogspot.com/2022/10/eidl-loan-default-questions-answers.html EIDL LOAN DEFAULT DOCUMENT REVIEW, WORKOUT, BANKRUPTCY FILING & OFFER IN COMPROMISE https://shenwick.blogspot.com/2022/07/eidl-loan-default-document-review.html EIDL Defaulted Loans https://shenwick.blogspot.com/2022/07/eidl-defaulted-loans.html New Relief Program for SBA EIDL Borrowers Who are Having Difficulty Repaying EIDL Loans " Hardship Accommodation Plan" https://shenwick.blogspot.com/2023/05/new-relief-program-for-sba-eidl.html EIDL LOANS and SBA OFFER IN COMPROMISE PROGRAM https://shenwick.blogspot.com/2022/07/eidl-loans-and-sba-offer-in-compromise.html PPP & EIDL Fraud https://shenwick.blogspot.com/2022/08/ppp-eidl-fraud.html Better to connect-What small business owners need to know about repaying loans tied to pandemic relief from the SBA EIDL Loans https://shenwick.blogspot.com/2022/11/better-to-connect-what-small-business.html

Personal Bankruptcy & Complex Personal Bankruptcy Filings

 As many readers over blog posts are aware, at Shenwick & Associates we practice personal and business bankruptcy law and workouts. With respect to our personal bankruptcy practice, we do not have a volume practice and we are generally referred more complex personal bankruptcy filings, rather than the run-of-the-mill filings, which we also do.

Recently, a client contacted us and wanted a second opinion regarding his personal bankruptcy filing. Briefly, the facts were as follows, the individual was a relatively high income earner with a lot of personal debt and a significant amount of student loans, including graduate student loans. He had consulted with a number of personal bankruptcy attorneys, who indicated that based on his income, he did not qualify for Chapter 7 bankruptcy but rather Chapter 13, which would entail a 3 to 5-year payment plan.

We met with the client and got detailed background financial information. Many of the clients' student loans were  graduate student loans, were related to his profession or his ability to earn an income and accordingly case law held that they may be classified as business income and not personal income. In the way of background, if an individual's income is greater than the state's “Median Income” and they fail the “Means Test”, they cannot file for chapter 7 bankruptcy.

We asked the client for documentation regarding his graduate school attendance and did exhaustive research regarding treating  graduate student loans as business income, rather than personal income. We put together a research memorandum, containing documents, case law and articles and based on our reviews of his file and our research, we believed that he would qualify for a Chapter 7 bankruptcy.

 We did not over-promise and indicated that we thought his chances of success were approximately 60% and that the Chapter 7 bankruptcy trustee and the United States Trustee would question the treatment of the graduate loans, review the filing and possibly challenge the bankruptcy filing.

The client was happy about the news, but concerned about his chances of  success and spoke with his father who advised him to move ahead with our law firm and file for Chapter 7 bankruptcy.

We spent a lot of time preparing the client for his 341 hearing had we forward our research memo to the chapter 7 trustee, who sent it to the United States Trustee and we were thrilled to find out this week that the client received his Chapter 7 bankruptcy discharge 

The client wrote us a  letter of recommendation which is provided below. 

Bankruptcy,  particularly personal bankruptcy is a specialized area of the law and clients having questions about which type of bankruptcy to file, if any and what chapter to file should contact Jim Shenwick for a consultation or a second opinion.   

Jim Shenwick, Esq.   jshenwick@gmail.com   212 541 6224

Client Recomendation

“I needed to file bankruptcy which was a very difficult and stressful decision. I never wanted to get to the point of having to file chapter 7, but I knew in order to have a fresh start it was the only way out. I spoke with several attorneys, most said I could only file chapter 13. I was single, no kids, and employed; my career and lifestyle were getting better but the debt was still substantial and I couldn't save any money. I felt overwhelmed thinking I had to figure out how to pay off the debt. James was the only attorney that firmly said you need to file for chapter 7. He didn't promise it would happen, in fact he was honest saying I had a 60/40 chance but he believed I had a good chance. I'm so glad I followed my instincts and went with him. He was aggressive and direct and got the job done. He prepared me for the court day and it went in my favor. I'm not gonna lie, I'm not proud of the situation, but I'm happy to be debt free with a new promising start. Thanks James!”

10 Tips On How To Avoid Legal Issues

This article from TDPel Media will be helpful to many clients (and some attorneys) titled 10 Tips On How To Avoid Legal Issues

The article can be found at https://tdpelmedia.com/10-tips-on-how-to-avoid-legal-issues

Jim Shenwick, Esq. jshenwick@gmail.com jshenwick@gmail.com

Recommendation of James Shenwick, Esq from an Existing Client

" I needed to file bankruptcy which was a very difficult and stressful decision. I never wanted to get to the point of having to file chapter 7, but I knew in order to have a fresh start it was the only way out. I spoke with several attorneys, most said I could only file chapter 13. I was single, no kids, and employed; my career and lifestyle were getting better but the debt was still substantial and I couldn't save any money. I felt overwhelmed thinking I had to figure out how to pay off the debt. 

James was the only attorney that firmly said you need to file for chapter 7. He didn't promise it would happen, in fact he was honest saying I had a 60/40 chance but he believed I had a good chance. I'm so glad I followed my instincts and went with him. He was aggressive and direct and got the job done. He prepared me for the court day and it went in my favor. I'm not gonna lie, I'm not proud of the situation, but I'm happy to be debt free with a new promising start. Thanks James!

How to Remove Negative Items From Your Credit Report

Money Magazine has an excellent article on this topic. The article can be found at https://money.com/get-items-removed-from-credit-report/

Jim Shenwick, Esq 212 541 6224 jshenwick@gmail.com

Need Tax Relief? Here’s How To Get Rid Of Your Back Taxes. Excellent article on how to get tax relief at Forbes.

 Need Tax Relief? Here’s How To Get Rid Of Your Back Taxes. Excellent article on how to get tax relief at Forbes. The article can be found at https://lnkd.in/ezfF9rQq

Not mentioned in the article, but many incomes taxes can be discharged in a chapter 7 bankruptcy filing. Jim Shenwick, Esq 212 541 6224 jshenwick@gmail.com

Need Tax Relief? Here’s How To Get Rid Of Your Back Taxes

Yahoo Life is reporting that Commercial Chapter 11 Filings Increase 29 Percent in June from Last Year, Total Filings Decrease Slightly

The article can be found at  https://www.yahoo.com/lifestyle/commercial-chapter-11-filings-increase-120000894.html

Professionals or clients with questions about chapter 11 bankruptcy can contact Jim Shenwick, Esq  212- 541-- 6224  jshenwick@gmail.com

James Shenwick, Esq is proud to announce that American Registry has selected him as Americas Most Honored Lawyers - Top 1% 2022

 

 What Is Chapter 7 Bankruptcy? See a very helpful article in the South Florida Report, URL below.

https://southfloridareporter.com/what-is-chapter-7-bankruptcy/

Jim Shenwick, Esq 212 541 6226 jshenwick@gmail.com