Can a Business Bankruptcy Include an EIDL Loan with a Personal Guarantee?

Many smaller businesses in South Florida sought loans through the federal government to remain afloat during the COVID-19 pandemic. There were various forms of funding that were available, including some funding that worked more like grants and some loans that would need to be repaid at a later date. Loans made through the US Small Business Administration (SBA) Economic Injury Disaster Loan (EIDL) program range widely in amount but all were clearly loans — all EIDL funding would need to be repaid. For quite some time, businesses with EIDL loans were able to defer repayment to avoid economic distress due to their EIDL loans coming due. Yet more recently, businesses throughout South Florida have been required to begin repaying those loans.

Some EIDL loans were less than $25,000, while some were for amounts over $500,000. For loans of more than $25,000, a business had to provide collateral. For loans greater than $200,000, the business had to provide a personal guarantee. In the case of the latter — EIDL loans with a personal guarantee — can a business restructure this debt through bankruptcy? This is indeed an option for many businesses, and our West Palm Beach business bankruptcy lawyer can provide you with more information.

Restructuring Business in a Reorganization Bankruptcy

If your business files for a type of reorganization bankruptcy, you can restructure business debt — including EIDL loan debt. Reorganization bankruptcies involve the creation of a repayment plan that can last from months to years, depending on the individual debtor’s circumstances. The length of the plan can also depend on the type of reorganization bankruptcy your business is filing for, which we will discuss in more detail below.

Over the length of your business’s repayment plan, you will repay certain creditors in full (secured and priority creditors), while some debts with nonpriority unsecured creditors may be eligible for discharge. If you have a personal guarantee associated with an EIDL loan, however, having any part of this loan discharged will result in the party with the personal guarantee becoming liable for the amount. Accordingly, most businesses filing for reorganization bankruptcies with EIDL loans will plan to catch up entirely on the EIDL debt they owe.

Types of Reorganization Bankruptcies for Businesses

There are several types of reorganization bankruptcy that your business can consider, depending on how it is structured and how much debt it owes. Some possibilities include:

• Chapter 11 bankruptcy;
• Subchapter V bankruptcy;
• Chapter 12 bankruptcy; and
• Chapter 13 bankruptcy for sole proprietorships.

Contact Our West Palm Beach Business Bankruptcy Attorneys About Your Reorganization Plans

If your South Florida business is struggling financially, and in part because of EIDL loan payments that are now due, you should find out more about filing for a type of business reorganization bankruptcy. As we discussed above, if you reorganize your business debt and repay your EIDL loan (even if it is not according to the original terms, but instead according to the terms in your repayment plan), you will not be personally liable for the debt. An experienced West Palm Beach bankruptcy lawyer at Kelley Kaplan Delaney & Eller, PLLC can discuss your business’s financial circumstances with you today, as well as types of reorganization bankruptcy that your business may be able to file. Contact our firm to learn more about how we can assist you.

Source:

sba.gov/funding-programs/loans/covid-19-relief-options/eidl