What Happens When My Florida Business’s Defaulted EIDL Loan Is Referred to the U.S. Treasury?
Many South Florida business owners who took out a COVID-era Economic Injury Disaster Loan (EIDL) are now falling behind on payments, and the consequences of default move faster, and are more severe, than many borrowers expect. Once the SBA refers a delinquent EIDL loan to the U.S. Department of the Treasury, the loan leaves the SBA’s hands entirely, and a new set of federal collection tools comes into play. Our West Palm Beach business bankruptcy lawyers can explain what this transfer means and what options remain available.
When and How the Referral Happens
The SBA generally sends delinquency notices as a loan falls behind, but once a loan reaches a certain point of delinquency, it is transferred out of the SBA’s servicing entirely and into the Treasury Department’s Bureau of the Fiscal Service, which administers what is known as the Cross-Servicing program. According to the Bureau of the Fiscal Service, once a debt is referred, Treasury uses tools including demand letters, negotiated payment agreements, credit bureau reporting, administrative wage garnishment, referrals to private collection agencies, and offset of federal and state payments through the Treasury Offset Program.
The SBA Generally Cannot Take the Loan Back
One of the most frustrating realities for business owners is that once an EIDL loan has been transferred to Treasury’s Cross-Servicing program, the SBA typically can no longer assist with the loan directly, even if the business owner would prefer to negotiate with the original agency. Any further payment arrangements, disputes, or negotiations must go through Treasury or, in some cases, a private collection agency working on Treasury’s behalf.
Collection Fees and Other Consequences
A defaulted loan referred to Treasury commonly has a substantial collection fee added to the outstanding balance, on top of accrued interest, meaning the total amount owed can increase significantly the moment the transfer occurs. Business owners who provided a personal guarantee on a larger EIDL loan should also expect that Treasury’s collection tools can extend to their personal finances, not just business assets.
Bankruptcy Can Stop Treasury Collection Activity
Filing for bankruptcy triggers the automatic stay, which applies to Treasury’s collection efforts just as it would to any other creditor. If your business (or you personally, if you signed a guarantee) files for bankruptcy after a Treasury referral, it is important to notify Treasury of the filing promptly so that collection actions, such as an already-scheduled offset or wage garnishment, can be halted.
Contact Our West Palm Beach Bankruptcy Attorneys Before Your EIDL Loan Reaches Treasury
The window to negotiate directly with the SBA on a struggling EIDL loan narrows considerably once the debt is referred to Treasury for collection. If your business has received default notices or you are concerned about an upcoming referral, do not wait. Reach out to one of the West Palm Beach bankruptcy attorneys at Kelley Kaplan Delaney & Eller, PLLC today so we can review your loan status and discuss whether bankruptcy or another option may protect your business and personal assets.
Source:
fiscal.treasury.gov/cross-servicing/
