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Chapter 7 bankruptcy. Does SBA loan get any special treatment or protection in bankruptcy.

Los Angeles, CA |

Just wondering if this can be discharged and what to watch for.

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Attorney answers 4


No special treatment vis-a-vis the fact that loan is an SBA loan, the loan obligation can be discharged in bankruptcy. However, SBA loans tend to be secured loans so the lien will often survive the bankruptcy or must otherwise be dealt with.


There is no special treatment if it is a straight unsecured loan. If it is secured, then loan might still be owed after the bankruptcy (depending on the circumstances). You should contact a bankruptcy attorney to determine your options with regards to the loan.


It's treated the same.



Normally, no. However, SBA loans are often secured debts, so the collateral is at risk if you take it out in a bankruptcy. Also, the SBA "could" (see it happen a couple of times) turn the unpaid debt it eats from the bank from which you obtained the loan (government guarantees) over to the IRS and ask them to collect upon it. IF that happens, they make the argument that it is a non-dischargeable governmental debt, making the bankruptcy pointless.

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