SBA / EIDL Default Defense: Frequently Asked Questions

After 90 days of missed payments, the SBA classifies your EIDL loan as in default. The SBA may then refer the debt to the Treasury Department for collection through the Treasury Offset Program (TOP), which can intercept your federal tax refunds, Social Security benefits, and other federal payments.

Source: 31 CFR 285.5 (Treasury Offset Program)

Up to 15% of your disposable pay can be garnished through Administrative Wage Garnishment (AWG) for defaulted EIDL loans. You have the right to a hearing before garnishment begins, and you can request a review based on financial hardship.

Source: 31 USC 3720D; 31 CFR 285.11

The Treasury Offset Program (TOP) allows the federal government to intercept federal payments owed to you, including tax refunds, to collect on defaulted EIDL debt. Before referral to TOP, the SBA is required to send a 60-day pre-referral notice giving you the opportunity to resolve the debt or dispute it.

Source: 31 CFR 285.5; 31 USC 3716

No practical limitation exists for federal debt collection. Unlike private debts, federal agencies can pursue collection on EIDL loans indefinitely. There is no statute of limitations that bars the government from collecting, and the debt does not expire.

Source: 28 USC 2415(a); Debt Collection Improvement Act of 1996

Yes. The SBA and Treasury accept Offers in Compromise (OIC) where you propose to settle the debt for less than the full amount owed. Approval rates are low, and the SBA will evaluate your income, assets, and ability to pay. Having legal counsel significantly improves the strength of your submission.

Source: 31 CFR 902.2

The SBA's Hardship Accommodation Plan (HAP) reduces your monthly EIDL payment to as low as $0 for borrowers who demonstrate financial hardship. The plan typically lasts 6 months and can be renewed. However, reduced payments under HAP may not cover accruing interest, which can increase your total balance.

Source: SBA EIDL Servicing Guidelines

$200,000 is the threshold. EIDL loans above $200,000 require a personal guarantee from business owners with 20% or more ownership. Below that amount, no personal guarantee was required for COVID-era EIDL loans, meaning only the business entity is liable.

Source: SBA SOP 50 30 (EIDL Loan Program Requirements)

For EIDL loans over $25,000, the SBA takes a security interest in your business assets through a UCC lien. For loans over $200,000 with a personal guarantee, the SBA could potentially pursue personal assets including real property. However, your primary residence may have homestead protections under state law.

Source: NY CPLR 5206 (Homestead Exemption); SBA SOP 50 30

Act within 60 days. This notice means the SBA intends to refer your debt to the Treasury Department for offset. You have 60 days to request a review, enter a repayment agreement, pay the debt in full, or dispute the amount. Missing this deadline severely limits your options.

Source: 31 USC 3716(a)

EIDL loans are not forgivable. Unlike PPP loans, Congress did not create a forgiveness mechanism for EIDL. Your options for reducing the debt are limited to Offer in Compromise, negotiated settlements, or in some cases, discharge through bankruptcy.

Closing your business does not eliminate the EIDL debt. The SBA will continue collection efforts against the business entity. If you signed a personal guarantee (loans over $200,000), you remain personally liable regardless of the business status.

Source: SBA SOP 50 30; 50 57

Yes, but it depends on the chapter. In Chapter 7, the EIDL loan may be dischargeable if you can show undue hardship or if the business entity is dissolved. In Chapter 11 or 13, the debt can potentially be restructured. The SBA will file a proof of claim and may object to discharge.

Source: 11 USC 523; 11 USC 1129

Yes. Federal law requires the SBA to send a written 60-day pre-referral notice before transferring your debt to the Treasury Offset Program. If you never received this notice, the referral may be procedurally void, which is a strong basis for challenging the offset.

Source: 31 USC 3716(a); 31 CFR 285.5(b)

3.75% is the fixed interest rate for COVID-era EIDL loans to businesses (2.75% for nonprofits). This rate does not increase upon default. However, the Treasury may add penalties and administrative fees once the debt is referred for collection.

Source: CARES Act; SBA EIDL Program Terms

Yes. Even after Treasury referral, you can make payments and attempt to negotiate a resolution. Contact both the SBA and the Bureau of Fiscal Service. In some cases, resumed consistent payments can support a request to recall the debt from TOP back to SBA servicing.

Yes.Treasury automatically adds a collection fee of approximately 28% to 30% to your outstanding balance. This fee is required by federal law under the Debt Collection Improvement Act and is meant to cover the cost of Treasury's collection efforts.

Source: 31 U.S.C. 3711(g); 31 U.S.C. 3717

Yes. Federal law gives you the right to challenge a Treasury referral, both before it happens and after. The process is called a Cross-Servicing Dispute, and a successful dispute can result in your loan being recalled back to the SBA, which, in many cases, means the 28%–30% Treasury collection fee is removed from your balance.

Source: 31 U.S.C. § 3711; 31 C.F.R. Parts 285 and 901; 13 C.F.R. Part 134; and SBA's SOP 50 57

If the dispute succeeds, the debt is recalled to the SBA, which produces several immediate benefits: the 28%-30% Treasury collection fee is removed from the balance; TOP offsets and Administrative Wage Garnishment stops; Private collection agency activity ends; and SBA OIC, OHA Petition and/or HAP become available again.

Source: 31 U.S.C. § 3711; 31 C.F.R. Parts 285 and 901; 13 C.F.R. Part 134; and SBA's SOP 50 57

Contact your U.S. Representative or Senator's office and ask for a congressional inquiry to the SBA. Provide your loan number, a brief summary of the issue, and supporting documentation. Congressional inquiries do not override SBA decisions, but they escalate your case to a dedicated contact within the agency.

Uncollectible status means the SBA has determined it cannot currently collect on your loan, typically because of hardship or inability to locate sufficient assets. The debt is not forgiven. The SBA can reactivate collection efforts at any time if your financial situation changes.

Yes. Through the Treasury Offset Program, the IRS can intercept your federal tax refund to apply toward your defaulted EIDL balance. State tax refunds may also be subject to offset depending on your state's participation in the program.

Source: 31 CFR 285.5