Federally backed loans in serious delinquency, past the point of collection by the primary lender, often end up at the US Treasury Department. This can include student loans, Federally backed agricultural loans, and as we often see, SBA backed loans.
If you are reading this article, chances are you once took on an SBA backed loan for your business and things have not worked out as planned. The business is closed and you were unsuccessful in settling your debt. Now you are being chased by the US Treasury Department.
In previous blog postings, I’ve discussed collection remedies that the Treasury Department can take above and beyond that of a traditional judgment creditor. To break it down – administrative (out of court) wage garnishments, seizure of tax returns and social security wages, and referral to the Department of Justice’s Financial Litigation Unit for litigation. However, contrary to the opinion of many attorney’s and “SBA loan experts”, you do not necessarily have to file bankruptcy in order to discharge the debt. A loan that is being serviced by the Treasury Department can be settled just like any other.
The first step in the settlement process is finding out which of the 4-5 (depending on when your loan arrives at Treasury as they change quite frequently) private collection firms is handling collections on the loan as a 3rd party on behalf of the Treasury Department. You may find out by the firm reaching out to you via a demand for payment letter followed up by phone calls, but there is also a good chance that your loan will be sitting at one of the collection firms for months before any action is taken. In that instance, by putting in a call to the US Treasury Department and letting them know your SBA loan number, they will help you track down the appropriate party to reach out to regarding settlement.
When submitting a settlement offer to the Treasury Department, the amount that is put forth for settlement should bear a resemblance to what the Treasury Department could obtain through forced collection. This means foreclosure on real estate (if they have liens on said real estate), garnishment of income, seizure of social security wages, and any and all other forms of collection that a judgment creditor may have. Depending on your personal circumstances, such as the state you live in or whether or not your spouse is also a guarantor, some of your assets may be off limits to collections, and this should be taken into consideration when acquiring settlement proceeds.
For instance, if you have some exposed equity in a property, it would be prudent to find out exactly how much of that equity could be obtained through a refinancing of the property. Generally this amount is about 80% of the market value of the property, which may only show a value slightly above what is owed on the mortgage. In this instance, that difference between the mortgage balance and the cash out from refinancing would be all that the Treasury Department could expect to get. They cannot force you to sell your home, and we have never in our experience seen the Treasury Department foreclose on residences.
There are similar asset protection strategies that can be employed in order to position you to have the most leverage when negotiating a settlement offer. An example would be sheltering your income in a way so that could not be affected by wage garnishment. An expert should be consulted to make sure that this is being done “above-board” so that the legality of said strategy never comes into question.
At Second Wind we have been dealing with loans at the Department of Treasury for over 10 years with great success. Routinely, clients will come to us after having submitted a settlement offer, only to be told, “any offers under 50% of the outstanding balance owed will not be reviewed”. Unbeknownst to most people, this is nothing more than a collection tactic used by the 3rd party collection firms. In the past year alone we have obtained multiple settlement between 14– 37% of the outstanding balance owed by our clients and we are confident we can achieve the same success for you.