EIDL Loan Sent to Collections: How to Resolve This Before It Gets Worse

That letter just arrived. Your EIDL loan - the one you got during COVID to try to keep your business alive - is now in collections. Maybe its still with SBA. Maybe its been referred to Treasury. Either way, your stomach dropped and your not sure what to do next.

Heres what I can tell you right now: this is not the end. Its not even close to the end. There are options you probly dont know about, programs that nobody told you existed, and ways to resolve this that dont involve paying back every penny or having your life destroyed.

At Spodek Law Group, we work with business owners every day who are facing exactly this situation. Todd Spodek and our team understand that taking an EIDL loan wasnt a scam - it was survival. You were trying to save your business during a global pandemic. The fact that it didnt work out dosent make you a criminal. Our mission is helping people navigate government debt in ways that protect there futures while dealing honestly with there obligations. Call us at 212-300-5196 becuase the longer you ignore this, the fewer options you have.

Understanding Where Your Loan Actually Is

First thing first - you need to understand the collection timeline becuase your options depend on where in the process you are.

Still with SBA. If your loan hasnt been referred to Treasury yet, you have the most options. SBA has hardship programs, deferment possibilities, and internal resolution paths. This is the best time to act.

Recently referred to Treasury. Once SBA gives up, your debt goes to the Bureau of Fiscal Service (Treasury). Theyve contracted with private collection agencies to pursue these debts. You still have options but theyre different now.

In active collections. Private collection agencies (PCAs) are calling you, sending letters, maybe threatening garnishment. These agencies have some authority to negotiate but theyre working on commission so there aggressive.

Offsets and garnishment started. If your tax refunds are being intercepted or wages/benefits are being garnished, youre in active enforcement. Resolution is still possible but more urgent.

How do you know where you are? The letters tell you. SBA correspondence comes from SBA. Treasury correspondence comes from Bureau of Fiscal Service or the assigned PCA (common ones are Pioneer Credit Recovery, CBE Group, etc.). If your seeing tax refund offsets, youre definitely with Treasury.

The Hardship Accommodation Plan Nobody Told You About

Heres something that drives me crazy. SBA has a formal program called the Hardship Accommodation Plan - HAP - that can reduce your monthly payments to as little as $25 based on documented financial hardship. And almost nobody knows it exists.

Why dosent anyone know? Becuase SBA dosent exactly advertise it. You have to ask. You have to know what to ask for. And you have to document your hardship properly.

HAP can:

• Reduce monthly payments dramaticly based on ability to pay
• Provide extended terms for repayment
• Give you breathing room while you stabilize
• Prevent referral to Treasury if you act before that happens

To qualify for HAP, you generaly need to show:

• Current financial hardship (loss of income, medical issues, etc.)
• Documented inability to pay the original terms
• Willingness to pay SOMETHING even if reduced
• Good faith effort to communicate with SBA

The documentation requirements are similar to what youd provide for any hardship claim - income statements, expenses, bank statements, maybe tax returns. Your CPA or financial advisor can help put this together.

If your still with SBA and struggling to pay, HAP should be your first call. Get in front of this before it gets referred to Treasury.

The Offer in Compromise Option

Like with IRS tax debt, both SBA and Treasury have authority to accept less than the full amount owed through whats called an Offer in Compromise (OIC).

The theory is simple: if you genuinly cant pay the full debt, and theres no realistic prospect that you ever will, the government is better off taking what you CAN pay then spending years chasing money that dosent exist.

OIC considerations include:

• Your current income and reasonable future income
• Your assets and equity in property
• Your monthly expenses and liabilities
• The age of the debt and collection history
• Any special circumstances affecting ability to pay

What most people dont realize is that settlements can be substantial. Weve seen debts resolved for 20-40% of the original amount when the hardship is genuine and properly documented.

The catch? You have to prove you cant pay. Not just say it. Prove it with bank statements, tax returns, asset valuations, income documentation. SBA and Treasury will verify your financial situation. Theyre not going to accept pennies on the dollar if you have a fat bank account or valuable property you could sell.

Also - and this is important - any debt forgiven through OIC may be taxable income. If you owe $100,000 and settle for $30,000, you might have $70,000 of cancellation of debt income. Make sure your accountant is part of this conversation.

The Personal Liability Question You Need To Answer

Heres something critical that many EIDL borrowers dont understand. Not all EIDL loans have personal guarantees.

For EIDL loans under $200,000, SBA generaly did NOT require a personal guarantee. The loan was to your business, secured by business assets. If your business failed and has no assets, the debt may be uncollectible against you personally.

For EIDL loans of $200,000 or more, personal guarantees were required. This means YOU personally are on the hook, not just your business entity.

Why does this matter? Becuase if theres no personal guarantee and your business has closed with no assets, collections efforts against you personally may be legally questionable. The government cant get blood from a stone, and they certainly cant get it from someone who dosent actually owe the debt personally.

This dosent mean the debt disappears - it still exists against the business. But in practical terms, if the business is gone and theres no personal guarantee, your personal assets may be protected.

However - and this is a big however - if you comingled funds, made personal guarantees you forgot about, or engaged in anything that could be characterized as fraud, this analysis changes completly. Get professional advice on your specific situation.

When Your Business Has Closed

Many EIDL borrowers are dealing with loans on businesses that no longer exist. The company took the loan, tried to survive, and ultimately failed anyway.

If your business is a corporation or LLC that has properly closed:

• The loan debt remains against the entity
• Without personal guarantee, your personal assets arent reachable
• Business assets (if any) can be pursued
• But a closed, asset-less entity has nothing to pursue

If your business was a sole proprietorship:

• Theres no legal distinction between you and the business
• The debt is inherently personal
• Collection can target personal assets
• Different strategies apply

The corporate structure you chose matters enormously here. If you were properly organized as an LLC or corporation and maintained that distinction, you have protections sole proprietors dont.

Dealing With Private Collection Agencies

Once your debt is with Treasury, you'll likely hear from private collection agencies. These companies - Pioneer Credit Recovery, CBE Group, and others - contract with the government to collect federal debts.

Heres what you need to know about dealing with them:

They work on commission. This means theyre motivated to collect SOMETHING rather than nothing. They have more incentive to settle than to keep calling forever.

They have some authority to negotiate. PCAs can accept payment plans and in some cases settlements within certain parameters. Bigger settlements require Treasury approval.

They must follow the law. Despite being aggressive, PCAs are subject to debt collection laws. They cant harass you illegaly, though they push limits.

Documentation matters. Keep records of every communication. Write down who you talked to, when, what was said. If they violate collection rules, you have recourse.