Many borrowers are surprised to learn that SBA loans are a dischargeable debt in a bankruptcy even though they are government backed loans unlike a lot of tax debt or federally backed student loans which are not. During the course of the pandemic many businesses took out SBA loans to help keep their businesses afloat.
Others took out loans just before the pandemic and despite efforts to sustain their businesses have been unable to do so. Billions of dollars in loans have been taken out by small business owners. Many type of businesses from gyms to restaurants have suffered decreased business due to COVID, increased costs and supply shortages resulting in the closure of those businesses.
The good news is, you do have the ability to start over again either by finding other employment or starting a new business without having to be saddled with the SBA loan for the rest of your life.
Essentially the government has the same right as any other unsecured creditor. Your business account and most likely your personal bank accounts can be garnished. Most business loans are also personally guaranteed which means you are personally responsible for the debt in addition to your business.
If the loan is secured by collateral, that collateral could potentially be taken if the loan is not paid. Depending on the terms of the loan, there might be a lien on your home. Filing for bankruptcy can be your solution to wipe the slate clean.
For more information and a “Free Initial Phone Consultation” about SBA loans and bankruptcy concerns such as chapter 7, chapter 13, debt settlement and more… Please contact our office today! 813-463-8000
There are several rules you have to be careful to follow when you are giving or receiving gifts before filing your bankruptcy case. You must disclose any gifts over $600 to any one person two years prior to filing your bankruptcy case. For that reason, it is best to keep the gift giving to a minimum to avoid having to pay the trustee.
You may give towards charitable contributions such as your church up to 10% of your income. It is fine to receive monetary gifts. For example, if your uncle gives you two thousand dollars to help you pay bills, you can that use money on reasonable living expenses without it being a problem.
If you receive regular financial contributions on a monthly basis, that money might have to be considered as income for the purpose of determining your eligibility for a Chapter 7.
I would recommend consulting with an attorney prior to receiving a gift that would be considered an asset like a car. For example, say your parents buy you a $10,000 car that is now titled in your name. That asset would not be fully exempt and that might require you to pay the trustee several thousand dollars.
That could have been avoided by keeping the car in your parent’s name. Do not transfer property out of your name to avoid paying the trustee because any transfers of property would still need to be disclosed for up to two years.
We generally recommend not making any property transfers before filing your case if you can avoid it or definitely get advice prior to doing so.
It is quite common for bankruptcy clients to have friends, family members, or significant others as co-signers due to their inability to obtain credit without co-signer.
Our clients are oftentimes concerned about how their decision to file for bankruptcy might affect their co-signer’s credit. If you have a credit card with a co-signer, you can still get that debt discharged by filing for bankruptcy. However, your co-signer would still be responsible for paying the balance if you do not pay it or if that debt is discharged.
If you have a co-signer on your motor vehicle, you could sign a reaffirmation agreement and continue to make the payment. Those payments would be positively reported to the credit bureaus. Then your co-signer would not be affected by your bankruptcy filing.
If you are in a Chapter 13, the automatic stay would protect your co-signer from any collection efforts by the creditor while you are in the Chapter 13 plan. However, if the creditor is ultimately not paid in full then the creditor could try to obtain the balance from the co-debtor. As long as the co-debtor or you are current on the payment, filing for bankruptcy should not adversely affect their credit.
Generally, if spouses are co-debtors and have a lot of joint debt it is more practical for both to file for bankruptcy so one spouse is not stuck with the debt. A co-debtor being on a loan or credit line raises a lot of concerns and questions on the impact a bankruptcy filing will have.
If you have any questions about how filing your bankruptcy could potentially affect a co-debtor, feel free to contact me at (813) 463-8000.
If you sell your homestead prior to filing your bankruptcy case, the trustee can look to see how that money was spent.
For example if two years ago you received $50,000 from proceeds from the sale of your house, how was that money spent?
Did you use the money on reasonable expenses? Did you pay back your creditors? Did you spend it frivolously? Did you incur debt at the same time or after receiving that money? Your case filing has to be in good faith where you didn’t incur debt with the intention of filing for bankruptcy.
You have to make an effort to pay off the debt but genuinely be unable to do so. Taking that example, if you took that $50,000 and gifted it to a family member the trustee could go after your family members for repayment of the $50,000 and use that money to pay your creditors.
If you took a vacation or spent the money frivolously instead of paying your creditors, the trustee would argue that you did not file the case in good faith and you would need to repay that money to the trustee. Generally, it’s better not to transfer property just prior to filing your bankruptcy case. Make sure any profits are accounted for from the sale. Keep receipts.
If there is a divorce order requiring that the property be sold, that is fine, but the money would still need to be accounted for. If you split the homestead profits with an ex, we would need to look too see if that person was also on the deed to the property and determine if they were entitled to 50% of the equity. If they have a 50% interest in the property but you give them 100% of the home sale proceeds without a divorce order that could be construed as a gift. The trustee could reverse the sale or go after your ex-spouse to receive your portion of the sale proceeds to pay your creditors.
If you are considering selling your home its best to wait until your bankruptcy case is concluded or you can potentially waive your homestead exemption by putting your property on the MLS or under contract. If you bankruptcy case is pending, you would need the court’s permission to sell the property. The trustee or any creditors could potentially object to you using the homestead exemption. Before deciding to transfer any property its always best to consult with your attorney prior to doing so.
A common question clients ask is whether they can sell or trade in their vehicle prior to filing bankruptcy. If using the Florida exemptions your allowed to have $1,000 in equity in your car. If you rent then you would have another $4,000 in exemptions to use on a car or you other personal property. For example, if the loan payoff on your car is $15,000 and the value of your car is $20,000, you would have $5,000 in equity in your vehicle. If you rent, you would owe nothing to the trustee (we could exempt all of the equity in the vehicle).
If you owned a home you would owe $4,000 to the trustee to keep your vehicle. People often ask why they would have to pay the trustee for a car that is paid off. The exemption amounts are a protection against people spending all of their money to accumulate assets then paying nothing back to their creditors when they file for bankruptcy.
The trustee will use Kelly blue book, private party value. We generally recommend obtaining a certified appraisal if you are over the exemption amount since Kelly blue book doesn’t account for a variety of factors such as the actual condition of the vehicle, mechanical issues or whether the vehicle has ever been involved in an accident. Many times once the vehicle is evaluated by an appraiser particularly if it’s an older vehicle with high mileage, the value will often be less than the Kelly blue book value.
If you trade in your car prior to filing bankruptcy you run the risk of having to pay back that amount to the trustee. For example if you received a $6,000 credit for trading in your current vehicle for a new one, the trustee could say you converted a non-exempt asset into an exempt asset so that amount of money would have to be paid to the trustee. All transfers of either personal property including cars or homes have a two year disclosure period. Under most circumstances, unless there is a reason to get rid of the vehicle, such as an immediate emergency mechanical issue, its best to just have your vehicle appraised and not sell it until your case is concluded to avoid such issues.