What happens to an SBA loan when you file for bankruptcy?
Usually, nothing good occurs when you file for bankruptcy and have an SBA defaulted loan. The intention of this is not to provide legal advice. If you seek legal advice, then you may want to consult an attorney. However, as business men, we should be free to consider the implications of various legal acts and discuss general concepts.
Here is an assumption: You and your spouse signed a personal guaranty for an SBA guaranteed loan.
When you take out a loan, you grant the SBA a second or third position regardless if equity is available or not. They can gain a position on your home by means of a mortgage subordinate to your original mortgage. Such action is commonly taken in order to prevent you from filing bankruptcy. Once attached to your home, it is impossible to shake off. Unless you opt for losing your house altogether (which is seldom the choice of preference), not even filing for bankruptcy can save you. Through a second way, the SBA attaches a lien to your home on the basis of your default loan which becomes allowed as a result of a lawsuit.
The SBA can easily make a judgment in the course of their foreclosure process even if they have not taken a mortgage position on your home. This occurs because of the default and two guarantees: yours and your spouse’s. Therefore, it is inevitable that they place a lien on your home. Once it is placed, it is firmly attached. There is no way to eliminate it and bankruptcy will not liberate you either. Unfortunately, the only option becomes losing the home.
The above can occur regardless if your spouse signs the guaranty or not. However, if there is any money to evolve from a foreclosure, 50% of the share is to be given to the non-signed spouse.
Thus, if bankruptcy can cost you your business and will not eliminate the SBA debt from your home, what are the benefits of filing for bankruptcy when you have an SBA loan guaranteed in default? The benefit is non-existent. Bankruptcy is a fixed deal. It will not work on your behalf. Borrowers are forced or intimidated into making payments and payment agreements that they otherwise cannot compensate. Perhaps your credit card debt may be discharged as well as other unsecured debt. However, for the reasons previously stated, an SBA loan will not.
If the home has no equity, then the SBA lien has no equity to support it. In this case, there can be a possibility that the SBA loan can be discharged from your home and further discharged from you personally. However, in order for this to occur, you may have to qualify for a chapter thirteen. Nevertheless, seek competent bankruptcy legal advice to determine what will be effective for you.
Speaking from experience, liens are perpetual. It is highly unlikely that you will ever be able to sell your home or even refinance your mortgage while a lien is attached. If you were able to sell your home, you would still be required to pay off the lien. Unless a home has more than a 20% equity value, the SBA and its banks will continue getting permission for foreclosure. They are not taking an aggressive enough position with borrower’s homes. Instead, they carry on allowing borrowers to remain without pursuing a lift from bankruptcy protection.
The majority of homes in the nation are currently “under water” devoid of equity. There are many SBA foreclosures. Additional mortgages and the inability to sell or refinance your home without confronting an SBA loan can make one feel as though they are living under a dark cloak forever. Getting a return on your investment will be impossible. So what is the point of paying a debt service?
The Second Wind Debt forgiveness strategy is the only viable alternative. It removes debt from your business assets, reduces your personal guaranty by a great deal, and eliminates the liens from your home.
Give us a call for a debt forgiveness or debt workout review at 413-584-2581 and ask for Norm. He can arrange a no obligation teleconference or phone consultation so that we can discuss your options. This way, we can explain in more detail how our debt workout program can grant you debt forgiveness for your SBA loan.