The SBA has eagle eyes and sharp talons when it comes to collecting from guarantors of business loans.
SBA collection tools are ruthless, efficient, and ageless.
So I learned when a client consulted me about a business that had failed 12 years ago.
Yet the SBA had never sued him, nor had it filed a lien on his home.
He reported that every time he changed jobs, however, the SBA just appeared and garnished his wages.
At this rate, his exposure on his SBA loan guarantee will live long beyond the next decade.
Statute of limitations
The United States Code 28 USC 2415 prescribes a six year statute of limitations on lawsuits to collect non tax debts owed to the US.
That six year period is reset with each payment the feds receive on the debt.
So, the SBA has six years from the last payment made to file a lawsuit against a guarantor for a money judgment. With a judgment comes a slew of collection tools under the law, including liens and levies.
But, it turns out, the feds don’t need a judgment to exercise powerful collection actions that usually require a judgment.
Like the IRS, the SBA has a right to garnish wages without ever going to court.
13 C.F.R. 140.11 lays out both the limits on how much of each paycheck can be garnished and the procedure for challenging a garnishment.
Chillingly, the regulation provides that the feds have the right to garnish until the debt is satisfied, or until there is a settlement. So that’s how the SBA kept surfacing for my client at each new job.
Offset into retirement years
Retirement isn’t a reprieve from SBA debt, either.
The government retains the right to offset any money it may owe you, as in tax refunds or Social Security benefits, to pay the debt. 31 USC 3716.
So, the passage of time will bar the initiation of a law suit that could result in a lien or a right to levy your assets, but the right to garnish wages or offset
mutual debts appears to have no time limit. A guarantor of the debt of a long dead business may be paying on that debt until the guarantor’s death.
SBA debts dischargeable in bankruptcy
If an SBA borrower isn’t able to reach a settlement of the debt with the SBA, any unsecured debt to the SBA is fully dischargeable in bankruptcy.
Secured debt owed to the SBA is only secured in a bankruptcy case to the extent that there is equity in the asset after liens senior to the SBA are paid. Thus in a Chapter 13, an SBA lien can be crammed down to the value of the collateral.
In the usual circumstances, the SBA is not protected by the provisions of Chapter 13 that bar modification or bifurcation of debts secured only by the debtor’s home: SBA debts are almost always secured by the assets of the business for whom the loan was taken out.