DOJ Collection Lawsuits for EIDL Defaults

The Referral to DOJ

When administrative collection efforts fail and the debt amount warrants the cost of litigation, the SBA refers the matter to the Department of Justice. The DOJ’s Civil Division or a United States Attorney’s Office then evaluates the case and, if it decides to proceed, files a complaint in the federal district court where the borrower resides or where the loan was executed.

What the Complaint Looks Like

A typical DOJ collection complaint alleges that the borrower received an EIDL loan, signed a promissory note, defaulted on the repayment terms, and owes a specified balance including principal, accrued interest, penalties, and administrative costs. The complaint may also seek to foreclose on any collateral pledged for the loan, though for many EIDL loans the collateral provisions are limited.

Defenses Available

Defending a DOJ collection lawsuit requires understanding both federal debt collection law and federal civil procedure. Defenses can include challenges to the debt amount and interest calculations, procedural defects in the pre-litigation collection process, statute of limitations arguments, challenges based on the SBA’s failure to comply with the DCIA and FCCS requirements, and equitable defenses based on government conduct such as detrimental reliance on HAP terms.

The Importance of Timely Response

Federal court deadlines are strict. Failure to respond to a DOJ collection complaint within the required timeframe results in a default judgment. Once a default judgment is entered, the government can pursue execution against the borrower’s assets. If you have been served with a DOJ collection complaint, contacting an attorney immediately is critical.