Tag Archive for: Unsecured Debt

SBA Loans In Bankruptcy

Small business loans or SBA loans are generally eliminated or discharged by a bankruptcy. One exception to discharging SBA loans in bankruptcy, is when the SBA loan is secured by collateral of the debtor. In that event, depending upon its position relative to other secured creditors, your SBA loan may survive your bankruptcy filing.

What Is An SBA Loan?

An SBA loan is a loan granted by the Small Business Administration. These loans are given to individuals to assist with opening a business or continuing to operate a business. You may choose an SBA loan because it is difficult to get financing as a small business, or perhaps because the terms of the SBA loan are more favorable than other types of financing available.

Personal Guarantees For SBA Loans

In almost all cases, you will be required to personally guarantee your SBA loan. This means that if the business defaults on the loan, the lender’s recourse is not only the business assets but also your personal assets. You can generally tell if you have personally guaranteed an SBA loan if you sign the loan documents once for the business and a second time in an “Individual” capacity. If you did personally guarantee your SBA loan or any other loan for your business, do not feel bad—most lenders will not give you the loan without the personal guarantee.

Does A Bankruptcy Address A Personal Guaranty?

Yes. Consumer bankruptcy comes in the form of Chapter 7 and Chapter 13. Both bankruptcy chapters address your personal debt as well as your personal obligation on business debt. The goal of the bankruptcy is to receive a discharge of the debt as to you, the individual. If you own a business which obligated itself on debt, typically you will dissolve the business with the NC Secretary of State in conjunction with filing bankruptcy. This serves to eliminate the business obligation on the debt, while the bankruptcy serves to eliminate the personal obligation.

Secured SBA Loans In Bankruptcy

Secured debt in bankruptcy is treated differently than unsecured debt. This is true whether it is a mortgage, a vehicle loan, or an SBA loan. If you want to keep the property, you must keep the debt associated with the property. For instance, if you own a vehicle worth $14,000 with a loan balance of $13,000, you can choose between surrendering the vehicle (and the debt) to the lender, OR you can retain the vehicle after bankruptcy and continue to make payments on the vehicle loan.

Most SBA loans are secured by real property, or real estate. If you own a home with a fair market value of $450,000 with a mortgage balance of $300,000, the mortgage is fully secured. This is because the balance of the mortgage is less than the FMV of the home. You may have an SBA loan with a balance of $50,000 which is also secured by the real property. While the SBA loan is in second place as a creditor behind the mortgage lender, but the SBA loan is still fully secured.

SBA Loans After Bankruptcy

If your SBA loan is discharged by your bankruptcy, you will have no further obligation to pay it. The SBA loan is treated like all other unsecured debt. If your SBA loan is secured, it will survive the bankruptcy and you will be obligated to continue to pay on it after bankruptcy. Most clients find that if they can discharge all other unsecured debt by way of bankruptcy, they can manage to pay the monthly amounts due on their secured debt. In many ways, when simply looking at the numbers, the discharge of debt in bankruptcy translates into giving yourself a raise.

Speak With A Bankruptcy Attorney Today

Getting started with bankruptcy planning is easy and we are happy to discuss SBA loans in bankruptcy. You can call us at 704.749.7747 for a free consultation or click HERE to request a phone call. A lawyer will call you today.

Bankruptcy For Unsecured Debt

If you are considering bankruptcy solely for unsecured debt, you will still have to pass The Means Test in bankruptcy. Typically, if the debt you wish to discharge in bankruptcy is unsecured, our goal will be to qualify you for a Chapter 7 bankruptcy filing. Whether your bankruptcy filing contains secured debt or is a bankruptcy for unsecured debt only, the process is very much the same. Lastly, you’re not alone– between 2005 and 2017, over 12 million individuals filed bankruptcy. Of those, over 8 million were Chapter 7.

Types Of Unsecured Debt

There are numerous types of unsecured debt which will be included in a Chapter 7 bankruptcy. Below is a list of the primary categories:

Credit Card Debt – Most credit card debt is unsecured

Line Of Credit – Most lines of credit are unsecured, though some banks use your checking and savings accounts as security for these debts. Your credit agreement will govern this.

Store Cards – Store card debt (Belk, Best Buy, Gap, etc.) is unsecured; however, the store can claim a security interest in the items you purchased. Most stores will not attempt this, but an example would be purchasing a large ticket item at Best Buy. The store may claim a security interest in the television or other electronics you purchased. This is not usually an obstacle in bankruptcy.

Pay Day Loans – Pay day loans are unsecured.

IRS Tax Debt – The IRS may have a lien related to your tax debt. In most cases they do not. IRS debt is typically treated as priority debt for bankruptcy. This means it survives the bankruptcy for unsecured debt. However, if your IRS debt meets the requirements for being treated as unsecured debt, we may be able to discharge the IRS debt with your bankruptcy filing.

State Tax Debt – The same is true of state tax debt.

Can I Use Credit Cards Before I File Bankruptcy?

If you use your credit cards within 90 days of filing bankruptcy, there is a presumption of abuse. This means that the court will presume you knew you were going to file bankruptcy and continued to use the cards without the intention to pay back the debt. As a result, any charges placed on the cards within 90 days of filing bankruptcy will survive the bankruptcy. While this will generally not interfere with your bankruptcy filing, it will mean you carry a balance after the bankruptcy.

It is best to wait 91 days from the last purchase on a card, before filing bankruptcy. After the 91st day, the presumption shifts in your favor. This means that your creditors would have the burden of proving you knew you were going to file bankruptcy and continued to use the card(s) leading up to bankruptcy. They would also have to prove you had no intention of paying back the debt. This burden is time consuming and expensive for the creditor, and they usually lose the argument. For this reason, debt which is 91 days old or older at the time of filing your bankruptcy will typically be included in the discharge.

How Long Does Filing A Bankruptcy For Unsecured Debt Take?

We have previously written about the time frame for a Chapter 7 from start to finish, and you can read that post: How Long Does Bankruptcy Take? Generally, our firm is ready to file when you are. For most clients, the ability to pay for the bankruptcy is what poses a delay in filing. Supposing you are ready to file bankruptcy and ready to pay for your bankruptcy, our firm can typically prepare your bankruptcy within two weeks.

Speak With A Charlotte Bankruptcy Lawyer Today

If you have questions about filing a bankruptcy for unsecured debt, call us today to get started. The phone call is free and part of our job is answering questions. You can reach us at 704.749.7747 or click for a FREE CASE EVALUATION and we will call you back today. We know you have choices. We hope you choose to Recover With Us.