How Bankruptcy Can Help Small Business Owners Eliminate SBA Loan Liability

I have met with many small business owners recently who have been trying to dig out from their financial troubles starting during the COVID-19 crisis.  Some have yet to recover, and, even after a lot of hard work and effort, just can’t keep going.   These Small business owners often face mounting pressure from debts, including Small Business Administration (SBA) loans.

Personal liability for these loans can threaten their financial stability. Bankruptcy can be a powerful tool to address these challenges, offering a path to eliminate personal liability for SBA loans and manage a struggling business. The experienced attorneys at BankruptcyLawChicago.com specialize in guiding small business owners and coming up with a plan, helping them develop tailored strategies to protect their financial future. This may involve bankruptcy or other out of court solutions.

Understanding Personal Liability for SBA Loans

SBA loans are a lifeline for many small businesses, providing funding for startup costs, expansion, or operational needs. However, these loans often require personal guarantees, meaning the business owner is personally responsible for repayment if the business cannot meet its obligations. If the business struggles or fails, creditors can pursue the owner’s personal assets, such as savings, homes, or other property, to recover the debt. This personal liability can create significant financial and emotional stress.

How Bankruptcy Can Help

Personal bankruptcy, particularly through Chapter 7 or Chapter 13, can provide relief for small business owners facing overwhelming SBA loan debt and business challenges. Here’s how:

1. Eliminating Personal Liability for SBA Loans

  • Chapter 7 Bankruptcy: In a Chapter 7 bankruptcy, unsecured debts, including personal guarantees for SBA loans, can often be discharged. This means the business owner is no longer personally liable for the debt, protecting their personal assets from creditors. However, the business itself may still be responsible for the loan unless it is also addressed through a separate business bankruptcy.
  • Chapter 13 Bankruptcy: For business owners with regular income, Chapter 13 allows for a repayment plan to manage debts over three to five years. This can include restructuring personal liability for SBA loans, making payments more manageable while protecting personal assets.

2. Addressing a Struggling Business

  • Personal bankruptcy can provide breathing room to address a failing business. By discharging or restructuring personal debts, owners can focus on deciding whether to restructure the business, seek additional financing, or wind down operations without the constant threat of personal financial ruin.

3. Protecting Personal Assets

  • Bankruptcy exemptions allow business owners to protect certain assets, such as a portion of home equity, retirement accounts, or personal belongings, from being seized to pay creditors. The attorneys at BankruptcyLawChicago.com are skilled at maximizing these exemptions to safeguard your financial foundation.

4. Stopping Creditor Harassment

  • Filing for bankruptcy triggers an automatic stay, which halts collection efforts against the owner, lawsuits, and wage garnishments related to SBA loans and other debts. This gives business owners peace of mind and time to work with their attorneys on a long-term plan.

Why Choose BankruptcyLawChicago.com?

Navigating personal bankruptcy as a small business owner is complex, especially when SBA loans and business debts are involved. The attorneys at BankruptcyLawChicago.com bring extensive experience in helping small business owners in Chicago and beyond. Here’s how they can assist:

Taking the First Step

If you’re a small business owner struggling with SBA loan debt or a failing business, personal bankruptcy could be the solution to eliminate personal liability and regain control of your financial future. The experienced attorneys at BankruptcyLawChicago.com are ready to help you explore your options and develop a plan tailored to your needs.

Don’t let financial stress overwhelm you. Contact BankruptcyLawChicago.com today for a consultation to discuss how bankruptcy can protect you and your business. With the right legal guidance, you can move forward with confidence and peace of mind.

Daniel J. Winter

BankruptcyLawChicago.com

djw@DWinterLaw.com