SBA and EIDL Loans Referred to Treasury

The Referral to Treasury and What It Costs

An EIDL that is 180 days delinquent must be referred to Treasury's Bureau of the Fiscal Service under the Debt Collection Improvement Act. From that point the SBA stops servicing the loan. Treasury places the account with a private collection agency under contract, and the borrower's next letter or phone call comes from that agency rather than from the SBA. The balance in the letter includes a Treasury collection fee that can approach 30 percent of the debt, added on top of interest that accrued through the deferment period and the default.

The SBA's borrower relief programs do not survive the referral. The Hardship Accommodation Plan ended in March 2025. The SBA does not recall COVID EIDL loans from Treasury for modification. The SBA's offer in compromise process, to the extent it still functions, applies only to businesses that have closed and liquidated. A New York business that is still operating is dealing with Treasury, and only Treasury, from here forward.

Collection Without a Lawsuit

Treasury's administrative remedies do not require a court.

• The Treasury Offset Program intercepts federal income tax refunds, payments to federal contractors, and a portion of Social Security benefits. New York State participates in reciprocal offset, so state tax refunds can be intercepted as well.
• Administrative wage garnishment allows Treasury to direct an employer to withhold up to 15 percent of a guarantor's disposable pay after 30 days' written notice, with a limited window to request a hearing.
• The debt is reported to the credit bureaus, and the business and its owners lose eligibility for future federal loans and many federal contracts.

Balances that remain unresolved are referred to the Department of Justice, which sues in federal court in the Southern or Eastern District of New York. A judgment for the United States is a lien on real property for twenty years, renewable, and it reaches property in every county where it is docketed. New York's homestead exemption is limited in amount, even at its highest level for the five boroughs and the surrounding counties, and it does not apply to investment property, a second apartment, or a cooperative or condominium unit that is not the owner's primary residence.

The Guarantors

COVID EIDLs over $200,000 required a personal guarantee from every owner of 20 percent or more. Loans over $500,000 called for real estate collateral where available. If you signed a guarantee, the collection remedies above run against you personally. Whether the SBA recorded a mortgage against any property you own, in ACRIS for the five boroughs or in the county clerk's office elsewhere, is one of the first things we check, because the presence or absence of a lien determines what the government can reach and how quickly.

What Can Be Negotiated After Referral

Treasury and its collection agencies routinely enter written repayment agreements. The agency's opening position is three years, because federal collection standards direct that installment agreements should liquidate a debt within three years and that is what the agency can approve on its own. Longer terms are available when the debtor documents an inability to pay within three years. That documentation is a financial statement for the business and for each guarantor, and the length of the agreement depends almost entirely on how well that package is prepared and presented. The negotiation is about term and monthly amount. It is not, in most operating-business cases, about the balance.

A compromise of the balance is possible in narrower circumstances. Treasury has compromise authority and, for debts above $100,000, acts with the concurrence of the Department of Justice. The government weighs the guarantor's assets and income, the likelihood of collecting through litigation, and the value of money now versus money over years. A compromise is most realistic when the debtor can fund a lump sum, for example by refinancing real property, before the file reaches the Department of Justice.

For a business that cannot support any payment Treasury will accept, a Subchapter V Chapter 11 in the Southern or Eastern District of New York caps what the business pays at its projected disposable income over three to five years and stays collection against the company while the case is pending. It is a workable option for a New York contractor, restaurant, medical practice, or service business with steady revenue and thin margins. It requires a plan the court will confirm, it invites scrutiny of what the owners pay themselves, and it does not by itself release the guarantors, so the personal side has to be planned at the same time.

Mistakes We See in New York Files

• Owners transfer an apartment or a business interest to a relative after the Treasury letter arrives. That is a fraudulent conveyance under both the federal debt collection statute and New York's Uniform Voidable Transactions Act, it will be reversed, and it converts a collection matter into something worse.
• Owners sign a three-year agreement they cannot keep, then default a second time with the fee already added.
• Owners send Treasury a financial statement, signed under penalty of perjury, that does not match the headcount or the asset disclosures in the original loan application.

Each of these is avoidable with a review before anything is signed or sent.

How We Approach These Matters

1. 1

   The Loan File

   We begin with the note, the loan authorization and agreement, the guarantees, any recorded mortgage or UCC financing statement, the original application, and an itemized statement from Treasury or the collection agency showing the principal, interest, and fee being claimed.

2. 2

   The Exposure Review

   We advise the company and each guarantor on their actual exposure under federal and New York law, including what a judgment could reach and what it could not.

3. 3

   The Financial Package

   We prepare the financial statements for the business and each guarantor, checked against the original application, because the length of any agreement depends on how well that package is prepared and presented.

4. 4

   The Negotiation

   We conduct the negotiation with the collection agency and, where the agency's authority runs out, with the Bureau of the Fiscal Service.

We bill hourly against a deposit held in our attorney trust account. We do not promise a term, a payment amount, or a reduction, because Treasury makes those decisions, but we can tell you after the review what is realistic and what it will take.

What to Bring to the Consultation

You do not need all of this to call us. It is what we will eventually need to give you a specific answer instead of a general one.

• The most recent letter from Treasury or the collection agency, with the itemized balance
• The note, loan authorization and agreement, and any personal guarantees
• The original EIDL application and any increase or reconsideration requests
• Any mortgage or UCC financing statement the SBA recorded
• Recent business financials and tax returns
• A list of real property each guarantor owns, including co-ops, condos, and investment units

Frequently Asked Questions

• The SBA says my loan is at Treasury and they cannot help. Is that true?

  Yes, for practical purposes. Once referred, the loan is serviced by Treasury and the SBA does not take it back for a workout.

• The collection agency will only offer three years. Can a lawyer get longer?

  Longer terms exist under federal collection standards where inability to pay within three years is documented. They require approval above the collection agency and a complete financial statement. No one can promise a particular term.

• Can Treasury garnish my wages in New York without suing me?

  Yes. Administrative wage garnishment of up to 15 percent of disposable pay is available to Treasury after notice, without a judgment. You have a short window to request a hearing.

• Can they take my apartment?

  Not your primary residence, up to New York's homestead exemption amount, without a judgment and a sale that clears the exemption. Any other real property you own is reachable once the United States obtains a judgment. If the SBA recorded a mortgage at closing, the property is collateral regardless.

• Is an EIDL dischargeable in bankruptcy?

  Yes, for the business and for the guarantors, unless the government proves the loan was obtained by fraud. The original application is the document that question turns on. Our business bankruptcy page covers the options for the company itself.