Can the SBA Go After Personal Assets?

What Can They Do to Me

When things start to go badly for a small-business owner with an SBA loan, there are two things they tend to want to know. The first is how much could they settle for? The second is what can they do to me if we don’t settle? If you signed a personal guarantee on your SBA loan, then the answer to the headline is yes, in more than one way. But some of those ways are more real than others, and some of them are more of a threat than the real thing. So let’s go through them, one at a time.

Can they put you in jail for an SBA loan default? Yes, but no. I mean they technically can, but only in some states, and even then almost never. Here’s how it would work. The bank gets a personal judgment against you. The bank then sends you an information subpoena. An information subpoena is a legal document served on you that says, “If you don’t give us the information we’re asking for, well, good luck.” The idea behind the subpoena is to get you to reveal how much you earn and what you own, so the bank can figure out whether you have anything that can be used to satisfy the judgment. Now, this document is easy to ignore, but if you do and you live in certain states, it’s possible they’d come arrest you. Being arrested is a worst-case scenario, however, and incredibly unlikely.

Can they take your home? It depends. If your home was pledged as collateral and has equity in it, the odds are they’ll put it on the foreclosure list. If not, it will be much harder for them to do anything with your house. That’s not to say it won’t happen, because a personal judgment can be attached to all of your personal property, including your home. In many cases, though, a judgment lien can’t be foreclosed on. If the creditor who placed the lien can’t foreclose, you’ll keep living there and the lien stays on your house. But if you want to sell or refinance the house, the lien has to be dealt with. You’d need to negotiate with the lender for a release of the lien. The debt follows the house.

Can they garnish your wages? Sure. Your tax refund? Again, sure. How about your spouse’s wages if your spouse didn’t personally guarantee the loan? Nope, your spouse owes the lender nothing - that would be like a stranger’s lender coming after you. Any personal assets you share with your spouse are a trickier question, since every state has its own property laws.

Can they come after your car? Or your lawn mower? Or your prize stamp collection? Possibly. Not very likely. In practice, lenders usually will only try to get stuff that they could easily get cash for. Jewelry or expensive art, sure, they might try. Your 2001 Toyota Camry? Probably not. After the repo man, the storage, the auction? They’re unlikely to net enough in cash to justify the bother.

Can they shut down another business you own that never guaranteed the debt? Yeah, that’s fair game. It’s considered an asset or an income source, regardless of the fact that that company never guaranteed the debt you’re dealing with now. If you co-own it with a partner who had nothing to do with the debt on the failed business, that should make it harder for the lender to get to it.

The Business Goes Bankrupt

A lot of small-business owners go into bankruptcy assuming that if the business is an LLC, an S-corp or a C-corp and it files Chapter 7, the debt will go away. And that makes sense: the point of becoming a business is to separate things from your own personal status. But a personal guarantee is a promise you made personally, separate from the business. So just because the business goes bankrupt, that doesn’t mean the bank can’t still come knocking on your door as the guarantor.

Treasury Offset Program

But what about the IRS? Is there any chance it will get involved? Actually, yeah. In many cases, the borrowers or guarantors of SBA loans are placed in something called the Treasury Offset Program. Once you’re in it, your tax returns are monitored. If you’re due a refund, it’ll be taken and applied to the loan balance.

What can they take? It depends on what you signed, what you pledged as collateral, and what state you live in. Some things, like jail or a repossessed old car, are possible but unlikely. Others, like losing your tax refund or having your wages garnished, are very much reality. These are realities worth keeping in mind - not things to scare you with, but things to help you know what a fair offer for settlement might be, so you don’t have to live in fear.