Skip to main content

Does bankruptcy cover deficiency balance on a SBA loan

Atlanta, GA |

SBA loan - small business association
deficiency balance - $80,000

Attorney Answers 4


  1. If you file a Chapter 13 bankruptcy you must list down the SBA loan as a personal debt, if you personally guaranteed the debt, which you almost always do. In a Chapter 7 bankruptcy you would list the SBA loan and usually (absent fraud, etc.) discharge the debt so they cannot collect from you personally if the business defaults on the loan. However, if you discharge the debt personally and the businesses defaults on the loan you probably will not be able to get a new SBA loan in the future if you try to restart your business. They may, however, still come after the business to try to collect on the debt if the business defauls on the loan and has assets.

    If the SBA loan is against a personal asset like a house, the issues get a bit more complex. Defaulting on an SBA loan can be problematic under certain other situations, such as if there is more than one co-signer.

    In any event, with an $80,000 deficiency, you need to sit down with a lawyer and determine the best options.

    If you find this answer helpful, please mark it here on AVVO as helpful. In answering you, I am attempting to communicate general legal information and am not representing you. Do feel free to call me at 404-768-3509 if you wish to discuss actual representation (the phone call also does not retain counsel; that requires an office visit and appropriate paperwork). In that a forum such as this provides me with limited details and doesn't allow me to review details and documents, it is possible that answers here, while meant to be helpful, may in some cases not be complete or accurate, and I highly recommend that you retain legal counsel rather than rely on the answers here. (You can also email my office at geaatl@msn.com . An email also does not retain my office, but can help you get an appointment set if you prefer not to call). Any information in this communication is for discussion purposes only, and is not offered as legal advice. There is no right to rely on the information contained in this communication and no attorney-client relationship is formed. Nothing in my answer should be considered as tax-advice. To ensure compliance with IRS Circular 230, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein. I am also required to advise you, if your question concerns bankruptcy, that the U.S. Congress has designated Ashman Law Office as a debt relief agency that can help people file bankruptcy.


  2. Yes, it would be discharged in your personal bankruptcy. Your business cannot get a discharge.


  3. Yes, the debt itself is dischargeable for you personally in either typy of case. However, many of these loans are securitized by real estate, so the lien would remain in a chapter 7. In such a case, you may be able to strip the lien, but would have to do a chapter 13 to do so. I have some cases where the SBA loan was actually attached to the house of a relative. In that case, the relative had to file to get rid of the lien. See an attorney to go over all of the details. and see what your options are.

    The above information is general in nature. In order to obtain more specific and legal advice upon which to base your important decisions, please contact our office directly for a free phone or in person consultation. Robert M. Gardner, Jr. Hicks, Massey & Gardner, LLP hmgrmg@yahoo.com 53 W. Candler St. Or 718 Oak St. Winder, Ga. 30680 Gainesville, Georgia (770) 307-4899 (770) 538-0555 gadebtlaw.com hicksmasseyandgardner.com serving metro Atlanta and all of Northeast Georgia Bankruptcy, Divorce, Personal Injury, Worker’s Compensation, Medical Malpractice, Adoption, Civil and Criminal Litigation


  4. In general, SBA loans are potentially dishcargeable by an indiviudal in a Chapter 7 case. However, your question does not address whether there is additional collateral for the loan, whether there are any co-signers on the loan, whether you have any non-exempt assets and whether or not you are eligible for Chapter 7 relief. I strongly recommend that you meet with an attorney and review your entire financial situation.

Bankruptcy topics

Top tips from attorneys

What others are asking

Questions?
An attorney can help.

Post a question and get free legal advice from attorneys.

Ask a Lawyer

- or -

Search for lawyers by reviews and ratings.

Find a Lawyer

Browse all legal topics