In the world of SBA collection, there exists a name that inspires fear in debtors far and wide. If a lender is having trouble collecting, they tell a debtor they will send the matter off for collection in the “Treasury,” using the name like some taboo character parents use to scare children in behaving properly.
SBA backed debts are guaranteed by the federal government in the event of default and, like all federally supported obligations, defaulted files that do not reach a resolution with the lending agent will be serviced by the US Treasury. The Treasury is not, however, the land of no return some lenders would like you to believe. However, you need to understand how to properly deal with them or else there can be serious consequences.
The Treasury is eternal in the fact that they will exist as long as the US government continues. The Treasury does have more authority to collect that a traditional lender as they can ignore state level protections such as homestead and IRA protections. These two facts make the Treasury impossible to deal with if you do not know what to do.
The US Treasury has enormous reach, but limited staff and because the government runs it, it operates very inefficiently. The Treasury does not take active collections against you as the investment in permanent staffing and collection costs is prohibitive when you are dealing with the millions of defaulted files the Treasury handles. Instead, the Treasury relies almost universally on passive methods of collection that can be put in place automatically to collect against you. This automated system used by the US Treasury Department to collect on you is called the Treasury Offset Program or “TOPs.”
TOPs is a tool employed regularly by the Treasury and there are three main methods they employ to collect against a defaulted loan.
- If you have defaulted on a Federally backed loan and you are due a refund on your tax return, forget about it, the US Treasury will take those funds and apply it to your debt.
- If you are due any Federal benefits payment such as social security, the Treasury will offset 15% of these funds. So if you are retired and on a fixed income, chances are the US Treasury will cut the amount you receive every month.
- Administrative wage garnishment is the last and perhaps most widely used strategy for collecting against you. This is the process where a creditor contacts the employer of a debtor and a percentage of their pay is withheld and sent to the creditor rather than to the debtor, typically 15% of NET earnings despite what the wage protections are in your state. Yes, you heard me right. If you live in Texas, Pennsylvania, South Carolina or any of those wonderful States that protect 100% of your wages from creditors, this does not apply to Administrative Wage Garnishment from the US Treasury Department.
The longevity of the Treasury allows them to use these passive methods to collect as much as possible on federally backed debts in almost every circumstance. Your home, cars, and other assets are generally untouched. The reason for this method of collection is to force the debtor to do the Treasury’s work. The Treasury knows that most debtors will be scared and distressed enough by the garnishment or loss of expected tax refund payment that they will contact the Treasury and agree to almost any term to end the collection. Many debtors, in fact, offer payment plans far in excess of the garnishment they are experiencing out of fear.
Ok, so now you know that the US Treasury Department will ignore local laws, they will garnish your wages until the end of time and they are a huge, bureaucracy that is tough to deal with. So, how do I settle my debt with the US Treasury Department?
Second Wind has worked within the Treasury, taking on client work that many lawyers told debtors was impossible for several years. We are knowledgeable in the US Treasury processes and our experience has allowed us to succeed. It took us many years and much trial and error to figure out how to properly deal with the US Treasury Department. There is no unsalvageable situation, but you should hire an expert to help you navigate this tricky debt settlement process. Contact us for a consultation to see what your savings could be.