SBA Loan Default Ramifications

What is the name of your state (only U.S. law)? Minnesota

I've been in business for the past 2.5 years and took an SBA loan 2 years ago for $35,000. I still owe $29,000 and I'm falling behind. I'm doing everything I can to continue my business, turn it into a profitable company, and pay my loan. I want to be pro-active in the event that I do not make it through the winter.

Since being granted a loan, I went personally bankrupt and my my wife divorced me. She has foreclosed on the home we lived in (was way upside down on the mortgage and we did not reaffirm the debt), and she is a co-signer of the SBA loan.

If I should default on the loan, where may I stand with the bank and SBA? Will they go after my ex-wife's personal assets? Neither I or my ex-wife have anything left for personal assets after the bankruptcy and divorce, so what will they come after?

Thank you for your help!

I own a consulting firm that only handles SBA default, so I've seen your situation many times.

First and foremost, if you file for personal chapter 7 bankruptcy and included the SBA debt as a creditor, you will no longer be liable for the debt if it's ultimately discharged. Once that happens, they can't levy any of your personal assets unless.

As for your ex, they can go after her if she has not gone the bk route. The bank can get a judgment and ttempt to levy her personal assets (wages, bank accounts etc), or the bank may opt not to do that and instead refer the matter to the SBA. Eventually the file will work its way to the US Treasury (or a collection company on behalf of the Treasury). The US Treasury does have the power to garnish wages without a judgment, so they may try to do that. Another thing they will do is put her in the Treasury Offset Program, which will garnish any federal payments that are due to her. For most people, this means any future federal tax refund she is entitled to will be garnished and applied to the loan balance.

My advice to clients is always to be proactive and try to settle BEFORE it ends up with the Treasury, as they are quite difficult to settle with (as opposed to the SBA, who tends to be more reasonable).

Best of luck with it!