Treasury Department Referred My EIDL Loan: What Does This Mean?

You opened a letter or logged into your portal and saw those words. "Referred to Treasury." Your stomach dropped. You read it again, hoping you misunderstood. But there it was, in black and white. Your EIDL loan is no longer with the SBA. It has been transferred to the United States Department of Treasury for collection.

At Spodek Law Group, we understand that moment of panic. That feeling when the ground shifts beneath you and suddenly everything you worked for feels at risk. If you are reading this at 2am, unable to sleep, wondering what this means for your future, we want you to know that you are not alone. Attorney Todd Spodek and our team have helped countless borrowers navigate exactly this situation, and we know there is more to this story than the terrifying letter suggests.

Heres the thing most people get wrong about Treasury referral. They assume its game over. They assume the government has all the power and they have none. They assume their only option is to pay everything immediately or lose everything slowly. Those assumptions are understandable. And their also incomplete. The reality is more complicated, and in that complication lies opportunity - if you know where to look and act before certain windows close.

What Treasury Referral Actually Means for Your EIDL

Let's start with the basics because understanding what's happened is the first step toward action. There's a massive difference between defaulting on a credit card and owing money to the federal government.

When your EIDL loan goes 120 days past due - that's roughly four months of missed payments - the SBA is required by law to transfer it to the Treasury Department. This isnt a choice they make. Its mandated under the Debt Collection Improvement Act of 1996. The SBA doesn't want to deal with defaulted loans anymore, and Treasury has the tools to collect on them that the SBA simply doesn't possess.

OK so what does "referred to Treasury" actually mean in practical terms? It means your loan is now in one of two programs, sometimes both. The first is called the Treasury Offset Program, or TOP. The second is the Cross-Servicing Program, or CSP. Each works differently, and knowing which one your in matters alot for understanding your options and your exposure.

The Treasury Offset Program is basically the government's way of intercepting money that would otherwise come to you from any federal source. Federal tax refunds - the money you might be counting on after overpaying estimated taxes all year. State tax refunds in some cases, because many states participate in the federal offset program. Social Security payments, whether you're receiving retirement benefits, disability payments, or survivors' benefits. Veterans receive benefits in certain circumstances. Any federal payment with your Social Security number attached becomes fair game for interception without warning. They don't need to sue you. They don't need a court order. They dont need to prove anything to a judge. They just... take it. The money disappears before it ever reaches your bank account.

The Cross-Servicing Program is more like traditional debt collection, except with federal powers that private collectors can only dream about. They send demand letters. They make phone calls. They report to credit bureaus, which destroys your credit score. They can refer your debt to private collection agencies who earn commissions based on what they recover. And yes, they can initiate administrative wage garnishment - taking up to 15% of your disposable income directly from your paycheck without ever asking a judge for permission.

Notice how the letter you received probly told you to "contact Treasury directly" but didnt tell you what to say? Didnt explain your options? Thats not an accident. The system isnt designed to help you understand your rights. Its designed to collect money.

The 30% Penalty Nobody Warned You About

Here's where things get even worse, and most people don't find out about this until it's too late to do anything about it.

When your EIDL loan gets transferred to Treasury, they're adding a penalty to your outstanding balance. Not a small administrative fee. Not a processing charge that adds a few hundred dollars. Were talking about 30% to 32% of your entire outstanding balance. Just added on. Automatically. No negotiation, no warning in most cases, no opportunity to object - just suddenly your debt is almost a third larger than it was the day before the transfer happened.

Think about that. You took out a $100,000 EIDL to keep your buisness alive during COVID. You couldn't make payments because the economy didn't bounce back. Now you owe $130,000 or more. That extra $30,000 exists purley because of timing - not because of anything you did wrong beyond already being unable to pay.

Heres the kicker that makes this even more absurd when you actually think about it. This penalty was supposedly designed to motivate borrowers to pay before transfer to the Treasury. The theory is that if people know a huge penalty is coming, they'll find a way to pay. But what actually happens in the real world? The debt becomes so large that repayment becomes mathematically impossible for most people in the position of defaulting in the first place. You were already struggling to pay $100,000 - thats why you defaulted. Now theres no way you can pay $130,000. The system designed to encourage payment actually makes payment less likely. Who does that benifit exactly?

The government would say its supposed to encourage people to stay current on there loans in the first place. But if your reading this, thats already ancient history. The question isnt whether you should have avoided default - obviously you should have if you could have, nobody defaults on purpose. The question is what to do now that your hear in this situation through whatever combination of circumstances brought you hear.

What the Government Can Take Without a Court Order

Let that phrase sink in for a moment, without a court order.

This is where Treasury collection is completely different from regular debt. When you default on a credit card, the creditor has to sue you. They need a judgment from a judge. You get to respond and defend yourself. There's a process with rules.

With federal debt owed to the Treasury Department? They dont need any of that. Under something called "administrative offset" authorized by the Debt Collection Improvement Act, they can intercept your money without any court involvement whatsoever:

Your federal tax refund. That money you were counting on for summer vacation, or to catch up on bills, or to finaly fix the car thats been making that wierd noise? Gone. You file your return expecting $4,000 back based on your withholding. Zero gets deposited into your account. You find out after the fact when you check your bank account and theres nothing their. The IRS sends you a notice explaining what happened - after its already over and the money is gone.

Your Social Security benefits. Yes, really, this is actually legal, and it happens to people every single day. Under the Debt Collection Improvement Act, they can take up to 15% of your monthly Social Security income to apply toward your federal debt. If you're counting on that money for retirement and you've planned your budget around receiving the full amount, this changes everything about your financial planning. If your already retired and living on Social Security as your primary income source, losing 15% every single month can be absolutely devastating to your ability to pay for basic necessities.

Your wages are being garnished through administrative garnishment. They can take 15% of your disposable income directly from every paycheck without ever seeing the inside of a courtroom. No lawsuit required. No judgment needed. No opportunity to argue your case to a judge or explain your circumstances. And your employer gets notified that your wages are being garnished for federal debt. Which means now your boss knows about your financial problems. The HR department knows. The people who process payroll know. The shame and embarasment can be as damaging as the actual money being taken.

Maria owned a small restraunt in Queens that she had built over 12 years before the pandemic hit. She took $75,000 EIDL to keep it open during COVID when indoor dining was banned and takeout wasnt covering her costs. When business didnt recover to pre-pandemic levels even after restrictions lifted, she couldnt make the EIDL payments while also paying rent and suppliers. She ignored the notices from SBA because she was overwelmed, already working 14-hour days just trying to keep the doors open. At 120 days delinquent, her loan went to Treasury. She only found out when her $3,800 tax refund didn't arrive in February. The IRS had offset it entirely. No phone call warning her. No letter explaining it was about to happen. Just... nothing in her account when she expected relief.

James was different in some ways but the outcome was eerily similar. Self-employed consultant who took $150,000 EIDL with personal guarantee because loans over $200,000 required them. When clients dried up and contracts got canceled during the economic downturn, he defaulted. After Treasury referral, administrative wage garnishment started on his W-2 side job that he had taken to make ends meet while trying to rebuild his consulting practice - 15% taken from every paycheck without any court involvement whatsoever. His employer was notified and HR asked him about it. He told us later the shame was worse then the money - feeling like a failure in front of coworkers who knew nothing about his situation.

The March 2026 Window Most Borrowers Dont Know Exists

Now here's something that might actually surprise you and give you a reason to keep reading instead of giving up in despair. And it's the reason this article isn't just doom and gloom, designed to terrify you into calling a lawyer.

In April 2024, Treasury granted the SBA a 2-year exemption from refering delinquent COVID-19 EIDLs to cross-servicing. What does that mean? Most EIDL loans sent to Treasury have been returned to SBA. Your loan might not even be at Treasury anymore - it might be back at SBA where you have significantly more options.

But - and this is absolutely critcal to understand - that exemption runs through March 2026. "Up to two years" doesn't mean exactly two years in every case. It could mean they resume referrals tommorow. Every week you wait and do nothing, that window shrinks a little more. Every month you ignore this situation hoping it will resolve itself somehow, you lose options that might not be their later when you finaly decide to act.

Heres the uncomfortable question nobody else is asking and that should keep you up at night: When was the last time you actually checked if your loan is even still at Treasury? Did anyone - SBA, Treasury, anyone at all - tell you it got returned to SBA? Probly not. The system isnt designed to keep you informed about developments that might help you. Its designed to collect money, and informed borrowers who know there options are harder to collect from.

As of May 2024, all SBA COVID EIDL debts are being serviced through SBA again under this exemption. That means if you contact them through the MySBA Loan Portal at lending.sba.gov, you might find you have options you didnt know existed because nobody told you. Options that disappear permanantly if you keep ignoring this and the exemption window closes.

Why Ignoring This Letter Makes Everything Worse

Look, we get it. When your overwelmed and just trying to get through each day, ignoring the scariest problem feels like the only option. You tell yourself youll deal with it later. Maybe it will go away. There's nothing you can do anyway.

Heres what actually happens when you ignore Treasury referral:

Week 1-4: Nothing visible happens. The sky doesn't fall. You feel relieved and validated in your decision to ignore it. Maybe it wasnt as serious as you thought. Maybe everyone was overreacting.

Month 2-3: Tax season arrives, and your refund gets intercepted completely. Bills you planned to pay go unpaid. Late fees pile up. The financial pressure gets significantly worse.

Month 4-6: If your earning W-2 income anywhere, wage garnishment begins. 15% of your paycheck starts disappearing. Your employer is notified. Coworkers might find out. The shame spirals.

Month 6+: The debt keeps accumulating intrest. The 30% penalty is already added. What started as $100,000 becomes $150,000, then $175,000. Eventualy bankruptcy looks like the only option - which might have been avoidable if you acted sooner.

The borrowers who avoided the worst outcomes? They didnt ignore the first warnings. But if your reading this artical, your probly past that point. The question isnt what you should have done differently. The question is what you can do NOW.

Options You Still Have Even After Treasury Referral

This is were most people assume the story is over and theres nothing left to do but wait for the government to take everything. But its not over. Theres still paths forward that can improve your situation significantly - but you have to act on them because they wont happen automaticly.

The Hardship Accomodation Plan (HAP)

If your loan is still with the SBA - or if it got returned to SBA under the exemption we mentioned earlier - you may qualify for dramaticly reduced monthly payments. Were talking potentialy as low as 10% of your normal monthly payment amount for the first six months. Then 50% of normal for another six months after that. Then 75% for the following six months. Its not forgivness of the debt, but it gives you breathing room to get your finances stabilized and figure out longer-term solutions.

Heres the catch that makes timing so important: You cant get HAP if your loan has already been permanantly sent to Treasury cross-servicing after the exemption expires. Thats why the March 2026 window matters so much. You need to act before that closes and your options narrow dramaticly.

Offer in Compromise (OIC)

Under federal regulations, agencies can accept less then the full amount if the debtor genuinley cant pay. The SBA has an OIC program that allows settlements. We're going to be honest - approvals have been extremely rare for COVID EIDLs. Some attorneys believe the program is basically non-functional for these loans. But it exists, and it requires the right documentation and professional help to navigate.

Loan Recall

If your loan was transferred to Treasury in procedural error - for example, if you never received the required 60-day notice before referral - you may be able to argue for recall back to SBA. This isnt common, but its not impossible eather.

Bankruptcy

Nobody wants to hear this word. But sometimes its genuinley the right answer. Chapter 7 can discharge EIDL debt completley if you personaly guaranteed it. Chapters 11 or 13 can be restructured into manageable payments. And heres somthing important - filing for bankruptcy immeditately stops Treasury offset through the automatic stay provision.

Is bankruptcy ideal? No. But neither is letting Treasury garnish your wages for years while debt keeps growing. Sometimes the cleanest path forward goes through a bankruptcy courtroom.

Hardship Exemptions from Offset

Even if your loan is definitivley at Treasury, you may be able to prove financial hardship that limits or stops the offset. This requires documentation and specific forms most people dont know exist - which is were profesional help makes a huge diference.

Some people avoided all of this by acting early. They entered Hardship Accomodation Plans before defaulting. They communicated with SBA proactivley. But thats in the past for you now. The question isnt whether the system is fair. Its whether you can make it work for you before your options disappear.

Getting Legal Help Before Your Window Closes

The clock is ticking. That March 2026 exemption window is shrinking. Your options today are beter then your options tommorow, which are beter then next month.

At Spodek Law Group, we have helped borrowers facing Treasury referral understand there options and take action. Attorney Todd Spodek brings decades of experience navigating federal debt situations. We know how to talk to the SBA. We know how to document hardship. We know what arguments actually work.

Here's what a consultation looks like: We review your situation - when did you default, what's the current status, what options might be available. Then we give you honest advice. Not false hope. Not scare tactics. Real information about your real options.

Some clients discover their loan was returned to SBA, and they qualify for HAP. Some learn they might be candidates for OIC. Some realize bankruptcy makes the most sense for there situation. And yes, some learn their options are limited and need to prepare for offset.

Whatever your situation turns out to be, knowing is better than not knowing. And acting is beter then ignoring while the clock runs out.

You dont have to figure this out alone. The system is confusing by design - neither SBA nor Treasury has incentive to explain your rights. That's where we come in.

Call Spodek Law Group at 212-300-5196. Lets talk about whats actually happening with your EIDL loan right now, what options you still have available, and what next steps make sense for your specific situation.

That letter you received doesn't have to be the end of your financial story. But the next chapter depends entirely on what you do next and how quickly you do it.