The Lowdown on the Referral of SBA Debts to the U.S. Department of Justice

Let me walk you through the unfolding drama when Small Business Administration (SBA) loans get seriously delinquent. When you don’t pay up for about 4 to 6 months or in official terms, 120 to 180 days, your loan gets sent over to the U.S. Treasury Department’s Bureau of Fiscal Service.

This Bureau will then use various methods to collect the debt. When push comes to shove, they might even hand over the debt to the U.S. Department of Justice (DoJ). This move provides superior leverage for the Government against you, the SBA borrower.

The Lowdown Behind the Litigation Process

When your debt reaches the DoJ, it accelerates the likelihood of litigation, and you can end up with a suit on your hands. An understanding of this process is critical because it could threaten and possibly seize your assets.

From the moment the civil action kicks off, the DoJ, through the U.S. Attorney’s Office representing the SBA, may use various methods to obtain security from your assets—this can happen even before the trial begins. If your promissory note does not provide security, the SBA can try, court-approved, to attach or create a lien on your personal or real property. The DoJ can also request a “trustee process”. This is a way to obtain a lien over your assets, including those held by a third party, for example, funds in your bank accounts.

Pre-trial Security Measures

Pre-trial security tools exert pressure on you to settle, and it also provides some guarantee for the SBA, should they win the judgment. However, be aware that certain types of property are exempt from these methods. In most cases, you’ll be notified if the SBA is attempting these legal maneuvers.

After the filing of a complaint and things have cooled down concerning attachment efforts, the suit then advances into a “pretrial” or “discovery” phase. During this phase, both parties seek to fish out as much information about the other’s case.

The Discovery Phase

Investigation in the discovery phase involves a myriad of tactics such as document requests, interrogatories (written questions), depositions (direct questioning under oath), and requests for admissions. While this phase may stretch for a couple of years, a case with no factual disputes can be resolved more quickly.

Assuming the case is not dismissed before trial, it will either be settled, won on a summary judgment or move to trial before a federal judge.

After Trial: The Arrival of the Judgment

Once the trial finishes and a decision has been rendered, a court order containing this verdict is referred to as a “judgment.” If it’s ruled that you owe money, this will appear in the judgment. Interest will also be added to the total judgment amount, calculated from the date of the initial civil action.

Post-Trial Events

Exhausted all appeals? Then a final judgment is entered in the trial court. After years of litigation, now is the moment for action—the successful SBA plaintiff can obtain an “execution” on the judg­ment from the court.

This execution allows the SBA plaintiff, now called the “judgment creditor”, to seize your assets and sell them to pay the judgment debt.

The Importance of Paying the Judgment

If you refuse or are unable to pay, the SBA judgment creditor can discover your assets’ whereabouts. If you’re not careful, you might even be arrested for not showing up to court proceedings about your assets! It’s also worth mentioning that failure to follow any supplementary process order could lead to imprisonment.

Bear in mind, an SBA judgment creditor usually has twenty years to collect on a judgment. If the federal judgment remains unpaid, you can be hauled into court for yet more supplementary process proceedings.

Worried About SBA debts? Get in touch with Todd and the Lawscape

Facing an SBA loan default that has been referred to the Treasury/Bureau of Fiscal Service or a Private Collection Agency? Get in touch with the Lawscape today at 212-460-5004.

Why hire the Lawscape? We’ve secured millions of dollars in SBA Debts through Offers in Compromise and Negotiated Repayment Agreements without our clients filing for Bankruptcy or Facing Home Foreclosure. Don’t let financial anxiety keep you up at night—reach out to us today.