My Business Closed: Am I Still Liable for the EIDL Loan?

At Spodek Law Group, we understand that the question keeping you up at night is probably simpler than the answer you need. You took an Economic Injury Disaster Loan during the pandemic. Your business did not survive. And now you are wondering whether closing that business means the debt disappeared with it. We have helped hundreds of people in exactly this situation find clarity, and the first thing we tell them is this: the question you are asking is not quite the right question.

The real question is not whether you are liable. The real question is which tier of liability you fall into, and whether the government even needs to sue you to collect. Because here is the thing nobody tells you upfront: the federal government has collection powers that regular creditors do not have. And your protection depends entirely on three factors you probably never thought about when you signed those documents in 2020.

If your reading this at 11pm wondering if your going to lose everything, slow down. Lets figure out which tier your actually in before you spiral into worst case scenarios that might not even apply to your situation.

The Question Everyone Asks Wrong

Already typing that question into Google. Business closed, EIDL loan, am I liable. Millions of people have searched some version of this since 2021. And most of the answers youll find are basically useless because they treat all EIDL loans the same way. Generic advice like "it depends on your situation" doesnt help anyone at 2am when there trying to figure out if there going to lose there house.

Heres the thing. They are not the same. The SBA structured the EIDL program with three distinct tiers, and each tier has completely different implications for your personal liability. The business closing has almost nothing to do with whether your personally liable. What matters is three numbers you probly dont even remember signing off on during that frantic week in April 2020 when you were just trying to keep the lights on.

Forget the business. The business is irrelevent to the liability question. What matters is what you signed, how much you borrowed, and how your business was structured when you took the money. Thats it. Thats the whole framework for understanding your situation. Everything else is noise.

Its less like a bank loan and more like a government debt with special rules. Rules that can work for you or against you depending on wich category you fall into. And the differance between the categories isnt subtle. Its the differance between walking away clean and being chased by the federal government for the rest of your working life.

The Three Numbers That Decide Everything

Twenty five thousand. Two hundred thousand. Twenty percent.

Those aren't random numbers. Therearee thresholds that determine whether the SBA can come after you personally orwhetherr your liability ends with the business entity you created. Most people signed their EIDL documents without understanding what these numbers would mean four years later when the business was gone, and the debt remained.

OK so heres were it gets messy. The EIDL program was designed with these specific breakpoints, and each one carries completely different consequences:

Under $25,000: No collateral required. No personal guarentee required. If your loan was under this amount and you had an LLC or corporation, your personal assets are basically off limits. The SBA has a lien on nothing. Your not personally on the hook. This is the cleanest tier to be in. You can dissolve the business, let the loan default, and move on with your life. The debt dies with the business entity.

$25,000 to $200,000: Collateral was required, but generally no personal guarantee. The SBA filed a UCC-1 lien on your business assets, which means they can seize business equipment, inventory, accounts receivable. But if you didnt sign a personal guarantee, your house and personal bank accounts should be protected. Usually. The key word there is "usually" because some loans in this range did require personal guarantees depending on when you applied and who processed your application.

Over $200,000: Personal guarantee was required if you owned 20% or more of the business. This is the danger zone. If your loan was above this threshold and you owned a signficant stake in the company, you almost certainly signed away your personal protection without realizing what it meant at the time. The guarantee makes you personally responsible for every dollar, regardless of what happens to the business. The LLC doesnt protect you anymore. The corporate veil has been pierced by your own signature.

Do you even know which tier your in? Most people dont. They signed whatever documents the SBA sent during the chaos of spring 2020 and hoped for the best. The application process was rushed. The SBA was overwhelmed. Nobody explained the tiers. Nobody warned you that these thresholds would matter more then anything else when the business failed.

Now there paying the price for that ambiguity. Laying awake wondering if they made a mistake they cant undo.

And if you dont remember what you signed, finding out should be your first priority. Not tommorow. Today. Because what your discover determins everything that comes next. Your either protected or your exposed. Theres no middle ground.

What Your Business Structure Actually Protects (And What It Doesnt)

That LLC you formed. The one that was suposed to protect you from personal liability. The whole reason you paid a lawyer or used LegalZoom back when you started the company. Heres the brutal truth about what it actually does and doesnt do when it comes to EIDL loans.

If your business was an LLC or corporation and you took out an EIDL under $200,000 without signing a personal guarantee, the LLC structure probably does protect you. You can close the business, let it default on the loan, and the SBA likely cannot pursue you personally. The debt stays with the dead entity. The corporate structure works exactly like it was designed to work.

But heres were people get confused. The LLC protection only matters if you didnt contractually give it away. If you signed a personal guarentee as part of your loan documents, the LLC protection is gone. Poof. That signature overrides everything. Doesnt matter that you formed an LLC. Doesnt matter that you followed all the corporate formalities. The guarantee means you agreed to be personally responsible.

Look, nobodys blaming you for not reading the fine print during a pandemic. Everyone was scared. Everyone just wanted the money to keep there business alive for another month. The restaurants needed to make payroll. The gyms needed to pay rent. The retail stores needed to stock inventory for when things reopened. Nobody had time to parse legal documents while there livelihood was colapsing.

But that doesnt change what the documents say. And four years later, those documents are coming back to haunt people who thought they were protected.

And if you were a sole propietor? Different story entirely. Completly different.

Sole proprietorships have no sheild. Zero. There is no legal seperation between you and the business. If you operated as a sole proprietor or even a DBA (doing business as), you are personally liable for every dollar of that EIDL loan regardles of the amount. Doesnt matter if it was $15,000 or $150,000 or $500,000. The structure itself makes you the borrower because there is no structure. The business is you. You are the business. The SBA loaned money directly to you as an individual.

This is the part that catches people off guard. They think having a business name means they have protection. They believe "Joe's Auto Repair" is somehow a seperate entity from Joe. But a DBA is just a name. Its not a legal entity. Its a marketing tool. Its a bank account title. Its nothing that provides any legal protection whatsoever.

The SBA knows the difference even if you didnt. And they will pursue you personally without hesitation if you were a sole proprietor.

If you dont know what structure you used when you applied for the EIDL, find out. Today. Check your loan documents. Look at how the application was filed. Was it filed under an EIN for an LLC or corporation? Or was it filed under your personal Social Security number? This single peice of information changes everthing about your options going forward.

How The Government Collects Without Suing You

A regular creditor has to sue you. Go to court. File a complaint. Serve you with papers. Give you a chance to respond. Win a judgment. Then try to collect. The process takes months or years, and you have opportunities to defend yourself at every step. You can negotiate. You can settle. You can file bankruptcy strategically. You have leverage.

The federal governmentdoesn'tt work that way. Not even close.

This is the part most attorneys dont want to put in writing because it sounds alarmist. But its completely true and you need to understand it before you decide what to do about your EIDL. The goverment has collection powers that would be unconstitutional if any private creditor tried to use them.

The Treasury Offset Program is a federal collection mechanism that doesnt require a lawsuit. Its designed to intercept federal payments automatically. No court order needed. No judgment required. Just administrative action.

Tax refunds gone. Expecting that $3,000 refund you counted on for your kids summer camp? Gone. Intercepted before it ever hits your bank account. Fifteen percent of your wages if you work anywhere that withholds federal taxes. Every paycheck, forever, until the debt is paid. Even fifteen percent of your Social Security benifits once you retire.

Let that sink in for a moment. Really let it sink in.

The government can take your Social Security payments for the rest of your life without ever stepping into a courtroom.

If you owed this money to a bank, theyd have to sue you. Prove there case in front of a judge. Get a judgement. Then figure out how to collect on that judgment, which is its own complicated process. The whole thing gives you leverage to negotiate, settle for pennies on the dollar, or file bankruptcy strategically before they can touch your assets.

The federal government skips all of that. Once your loan gets referred to the Treasury Offset Program, they just start taking. No judge. No hearing. No oppertunity to explain that your business failed through no fault of your own. No chance to argue that the pandemic wasnt your fault. They dont care about your story. They have the power to collect automatically, and they use it.

And it gets worse. Much worse. The penalty.

When loans get referred to Treasury, they add a 30% collection fee to your balance. So that $100,000 loan you couldnt pay? Its now $130,000. That $75,000 loan? Now $97,500. And interest keeps acrueing on top of that inflated balance. Forever. Until its paid or you die.

This is not theoreticle. This is not a scare tactic. Borrowers who were referred to Treasury in early 2024 discovered this penality on there statements when they finaly got through to someone. Nobody warned them in advance because nobody was talking about the deadline. Nobody told them the 30% was coming.

The March 2026 Deadline Nobody Talks About

April 2024. The Treasury system broke.

The SBA had referred so many delinquent EIDL loans to Treasury for collection that the whole operation became overwhelmed. The infrastructure wasn't built for this volume. Borrowerscouldn'tt even reach anyone at Treasury because there weretooo many cases flooding the system. The phones just rang and rang. Emails went unanswered for months. The system designed to collect these debts was choking on the volume of pandemic loans that had gone bad.

So the SBA did somthing unexpected. They pulled the loans back.

In April 2024, Treasury granted the SBA a two year exemption from referring all delinquent COVID-19 EIDLs to cross-servicing. That meant all the loans that had already been sent to Treasury came back to SBA for servicing. Borrowers got a reprieve they didnt even know they were getting. The 30% penaltys that had been added? Still there. But at least no new referrals were happening.

That exemption runs through March 31, 2026.

Remember that date. March 31, 2026. Write it down somewhere.

The SBA Office of Inspector General confirmed it in Report 25-23. All delinquent COVID-19 EIDLs returned to SBA servicing through that date. After March 31, 2026, the exemption ends. Referrals to Treasury resume. The 30% penaltys start getting added again to loans that were in the quiet period.

Heres what this means practically. If you defaulted on your EIDL in 2022 or 2023, you probly noticed that nothing much happened. No garnishments. Tax refunds still came. You might have assumed the government forgot about you or wrote off your loan. They didnt forget. They just couldnt process everyone at once.

Nobody warned them because nobody was talking about this deadline. The borrowers who waited, who assumed nothing would happen becuase nothing had happened yet, there going to discover that the quiet period was temprary. The window is closing faster then most people realize.

When March 2026 arrives and referrals resume, borrowers in Treasurys system will discover the 30% penalty that got added to there loan balance. And by then, their options will be severely limited. The bankruptcy that could have discharged everything? Now it's complicated by the Treasury referral. The negotiation that might have worked? Off the table once Treasury is involved.

If your going to act, you need to act before that window closes. Not after. After is to late.

Default Is Not Fraud - Heres Why That Matters

Your laying awake wondering if you accidentaly became a criminal. Whether that EIDL money you used to pay yourself during the worst months was somehow fraud. Whether the government is going to come after you not just for the money but for your freedom. Whether they're going to show up at your door with handcuffs because your restaurant failed.

Lets be real about what fraud actually looks like. Because the news stories about EIDL fraud prosecutions are terrifying if you dont understand the difference between fraud and default.

Abraham Park of California got 46 months in federal prison in August 2025. He wasn't a business owner whose restaurant failed during COVID. He submitted over 120 fraudulant EIDL applications. He created fake companies for clients. He fabricated employees and revenue numbers for businesses that didnt exist. He wasnt trying to save a real business. He was running a scheme to steal $6.9 million from the SBA through deliberate lies.

Thats fraud. Clear, unambiguous, prosecutable fraud.

Mendel Deutsch of New Jersey pleaded guilty in November 2025 to $1.8 million in fraudulant EIDL loans. He submitted false statements about employees, revenues, and cost of goods sold for businesses that had "little or no operations." He wasnt a struggling business owner. He was a schemer applying for loans for companies that barely existed.

Thats fraud. Intentional deception to steal government money.

Now compare that to you.

You had a real business. You applied for an EIDL because the pandemic destroyed your revenue overnight. You used the money to try to keep the doors open, pay your employees who were depending on you, pay yourself because you had no other income and your family needed to eat. The business still failed despite your best efforts because the pandemic lasted longer then anyone predicted and customers never came back the way you hoped.

Thats not fraud. Thats just business. Thats entrepreneurship. Sometimes businesses fail. Sometimes they fail even when you do everything right.

93 percent. Thats the federal conviction rate if they actually charge you with fraud. The government doesnt pursue fraud cases lightly. They have limited resources. They pursue them when they have evidence of intentional deception, fake documents, fictitious companies, manufactured revenue numbers. They dont waste there time on people who tried there best and lost.

Closing a failed business and defaulting on the loan? The legal system treats that completely differently then fraud. Default is a civil matter. Its about money, not morality. Bankruptcy can discharge it completley. Nobody goes to prison for being unable to pay a debt they genuinly tried to repay with a business that genuinly existed.

The distinction matters because it changes your options. If your terrified of prison, you need to stop. Take a breath. Unless you fabricated your application, created fake businesses, invented employees that never existed, or used the money for obviously personal luxuries like boats and cars, your not facing criminal charges. Your facing a debt problem. And debt problems have solutions.

What To Do Before The Window Closes

So what do you do now? How do you move forward when the deadline is approaching and the stakes feel impossibly high?

First, determine your tier. Find your original EIDL loan documents. Look at the total amount. Check whether you signed a personal guarantee. Identify whether your business was an LLC, corporation, or sole proprietorship. This information determines which options are available to you.Don'tt guess. Dont assume. Find the actual documents and know for certain.

Second, understand your timeline. The Treasury exemption ends March 31, 2026. If your going to act strategically, whether thats negotiating, filing bankruptcy, or simply preparing for whats coming, you need to do it before that deadline. Waiting until April 2026 means the 30% penalty, means Treasury collection powers, means a much harder path forward.

Third, consult an attorney who understands federal debt. Not a general practitioner who doesnt know the tier system. Not someone whos never dealt with Treasury collection. This isnt the time for doing nothing and hoping it goes away. The borrowers who waited learned that the quiet period wasn't permanent. Todd Spodek and the team at Spodek Law Group have helped hundreds of business owners navigate exactly this situation. We understand the tier system, the Treasury collection powers, and the options available depending on your specific circumstances.

Bankruptcy might be the right answer for your situation. For many borrowers, Chapter 7 or Chapter 13 can discharge the personal liability completely, giving you a genuine fresh start. The process can be completed in as little as six months. And contrary to what you might think, bankruptcy is not a scarlet letter anymore. It's a legal tool designed specifically for situations like this, for honest people who were crushed by circumstances beyond their control.

Or maybe your in a better position then you think. Maybe your loan was under $200,000 and you never signed a personal guarantee. Maybe dissolving the business formally through proper legal channels is all you need to do. Maybe your nightmare scenario isnt even your real scenario.

The only way to know is to have someone review your specific situation. Someone who understands not just the legal framework but the practical realties of how the SBA and Treasury actually operate. Someone whos seen hundreds of these cases and knows what options exist.

Call 212-300-5196. The consultation is confidential. We will review your documents, identify your tier, and explain your options clearly. No judgment about the business failing. No lectures about what you should have done differently. Just clear information about what you can do now, before the window closes.

The window closes March 2026. Act before it does.