How Reorganization Can Reduce or Eliminate SBA Debt

In many cases it can reduce it substantially. Under a Subchapter V plan, the secured portion of an SBA loan is generally limited to the value of the collateral, and the rest is treated as unsecured debt that is paid only from what the business can afford over three to five years. How much is reduced depends on your collateral, your income, and your other debts, which is why the first step is a review of the actual numbers.

All three are SBA-backed business debt and can be addressed in a reorganization. How each loan is treated depends on its terms and what secures it, so we review your loan documents to see how each one would be handled.

A personal guarantee is a separate obligation, so a reorganization does not erase it automatically. But when the business’s debt is reduced, what a creditor can pursue from you personally may be reduced as well, and in appropriate cases the court can bar creditors from pursuing a guarantor while the plan is carried out. We review each guarantee as part of the analysis.

When your case is filed, an automatic stay generally stops collection actions, including lawsuits, while the court supervises your plan. Government creditors can be subject to special rules in some situations, so we confirm how it applies to your loan.

An SBA settlement (an offer in compromise) is voluntary. The agency can say no or ask for terms the business cannot meet. A Subchapter V plan is a court process, and when the legal requirements are met it can be confirmed even over a creditor’s objection.

Generally, the business must be operating, have debts below the Subchapter V limit, and have enough income to cover its operating expenses and fund a plan. We confirm eligibility during your free consultation.