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Does bankruptcy cover deficiency balance on a SBA loan

Atlanta, GA |
Attorney answers 4


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.

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


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 53 W. Candler St. Or 718 Oak St. Winder, Ga. 30680 Gainesville, Georgia (770) 307-4899 (770) 538-0555 serving metro Atlanta and all of Northeast Georgia Bankruptcy, Divorce, Personal Injury, Worker’s Compensation, Medical Malpractice, Adoption, Civil and Criminal Litigation


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.

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