Can an EIDL Loan Be Discharged in a Bankruptcy Case?
Businesses throughout South Florida applied for and received Economic Injury Disaster Loans (EIDL loans) during the COVID-19 pandemic. More recently, some South Florida businesses applied for EIDL loans in the aftermath of devastating hurricanes that caused significant property damage to businesses. While EIDL loans have been a common source of funding for numerous South Florida businesses since 2020, these loans have come due, and many businesses are not able to make the payments. Some of those businesses that received EIDL loans have closed, and others are considering closing. Others are considering reorganization bankruptcy. And in many cases, individual business owners provided personal guarantees for EIDL loans.
If you are in any of the situations described above, you may be wondering: can an EIDL loan be discharged in a bankruptcy case? It depends on your particular circumstances, and our West Palm Beach bankruptcy attorneys can explain in more detail.
Individual Bankruptcy Cases for EIDL Loan Personal Guarantees
A personal guarantee has traditionally been required for EIDL loans greater than $200,000. If you provided a personal guarantee and your business has since closed or will soon close, you will now be personally liable for the EIDL loan. The debt may be dischargeable if you file for personal bankruptcy.
Business Reorganization Bankruptcy with an EIDL Loan
Businesses that are struggling with EIDL loan debt that want to file for Chapter 11 bankruptcy may be able to restructure that debt, and possibly even have some of it discharged, at the end of the reorganization bankruptcy. It is critical to discuss the specific details of your business’s EIDL loan with a lawyer to determine how it will be treated in a Chapter 11 bankruptcy.
Considering Limitations on the Dischargeability of EIDL Loans
When EIDL loans are provided, they must be used in specific ways and for particular purposes. If you are considering an individual bankruptcy filing to discharge the debt you owe due to your EIDL personal guarantee, or your business is considering a Chapter 11 bankruptcy to restructure debt including EIDL debt, it is important to know: dischargeability may be impacted if there are any concerns about fraud or misrepresentation in securing the loan originally, or questions about whether the EIDL loan funds were used for anything other than the intended use.
According to the SBA, EIDL loans must be used by businesses to “meet their ordinary and necessary financial obligations that cannot be met as a direct result of the disaster.” Use for personal purposes, or other unintended purposes, may affect whether or not the debt can be discharged.
Contact Our West Palm Beach Bankruptcy Lawyers Today
For businesses and business owners in South Florida, EIDL loan debt can pose difficulties and complications. Whether you have questions about filing for a Chapter 11 business bankruptcy with EIDL loan debt, or you need assistance with a personal bankruptcy case that involves a personal guarantee for an EIDL loan, one of the lawyers at our firm can assist you. Do not hesitate to get in touch with an experienced West Palm Beach bankruptcy attorney at Kelley, Fulton, Kaplan & Eller today to have your questions answered and to begin working on your bankruptcy case.
Sources:
sba.gov/funding-programs/disaster-assistance/economic-injury-disaster-loans
sba.gov/funding-programs/disaster-assistance/hurricane-milton
law.cornell.edu/uscode/text/11
