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A Guide to SBA Loans and Debt Settlement
Many people get SBA (Small Business Administration) loans to expand or start a business. However, the borrower is responsible for the loan whether or not the business succeeds. SBA loan obligations can be eliminated through bankruptcy, but assets pledged as collateral can still be seized. Here, borrowers can learn how to discharge an SBA loan debt during bankruptcy.
What Are SBA Loans?
The US Small Business Administration is a government agency that offers support to individuals who want to start small businesses. One of the SBA’s primary functions is to offer assistance to those who can’t get a loan through conventional channels. Here, the SBA helps by providing partial backing that helps the borrower get the financing they need.
In most instances, borrowers must sign a guarantee to get an SBA loan. This document makes the borrower personally liable for the loan amount, and a lender can garnish their wages, file a lawsuit, or put liens on personal property in the event of a default. However, if a borrower can’t afford to settle SBA debt, they may be able to eliminate the debt by filing for bankruptcy.
Getting a Loan Discharge via Bankruptcy
It can be risky to start a business, and many companies fail due to external factors. Because the Small Business Administration is a government agency, many people believe that these loans can’t be discharged in bankruptcy. While most loans are dischargeable, a person can still lose his or her assets if they were listed as collateral.
A Bankruptcy Doesn’t Eliminate a Lender’s Security Interests
When a borrower files for bankruptcy, their liabilities are considered unsecured or secured. An unsecured debt may take the form of a medical bill or personal loan; a secured debt is one where a lender has a lien on personal property. Generally, discharges only eliminate personal liability for debts; they don’t eliminate lenders’ security interest or liens. Therefore, if a person used any of his or her own assets to secure a Small Business Administration loan, the lender can follow through with a lien even if the borrower files for bankruptcy.
Starting a business is a big risk, and many companies don’t make it. If an owner of a failed business is dealing with an SBA loan default, they should consider consulting a debt settlement service or an SBA attorney.
This project was last updated 28 days ago