If you’re struggling to repay your business’s COVID-19 EIDL or SBA loans, bankruptcy could help you get a fresh start. The government helped many small businesses stay afloat during the COVID-19 pandemic with Economic Injury Disaster Loans (EIDL), Paycheck Protection Program (PPP) loans, and other SBA loans. Many of the loans came with substantial strings attached – they have to be repaid to the government, some have personal guarantees such as pledging your home as collateral, and a hardship repayment plan that helped some businesses has ended. If you’re staring down SBA loan repayments your business can’t afford, bankruptcy might be the best option.
How Does the Type and Amount of an SBA Loan Affect a Business Bankruptcy Filing?
Subtle differences among the types of SBA loans that were available to small business owners during the pandemic can affect bankruptcy filings. First, the loan amount matters. If your business received an EIDL loan of over $200,000, you would have had to provide a personal guarantee and collateral to the SBA. In other words, the SBA probably required you to accept personal liability and pledge your home or other large asset as collateral for the loan. Check your property documents to see if the SBA has placed a lien on your house. If so, then the lien will remain until the loan is paid off or the house is sold and the lien is paid from the proceeds.
If you received an EIDL loan of less than $200,000, a PPP loan, or another SBA loan, then your personal liability varies. For example, business owners generally don’t have personal liability for a PPP loan. But some other types and amounts of SBA loans did come with personal liability or a collateral requirement. Why do personal liability and collateral matter? If your business defaults on an SBA loan that has personal liability attached, the SBA can go after your personal assets to satisfy the debt. If you pledged collateral, the SBA can seize it and sell it. As a result, it may make financial sense for both you individually and your business to declare bankruptcy at the same time.
How Can Bankruptcy Help You and Your Small Business?
Generally, all SBA loans, including EIDL and PPP loans, can be discharged in a business bankruptcy. Filing a business bankruptcy stops the collections process in its tracks, unless you accepted personal responsibility for the loan or are a sole proprietor. To fully stop collections when you have personal liability, you will need to file for personal bankruptcy as well.
During the business’s bankruptcy, the court and the trustee will determine how to reorganize the business to address its debts more effectively or sell assets to pay them. At some point, the business may be granted a discharge of some or all debts, including SBA loans. We highly recommend working with a lawyer for a Chapter 7 or 11 business bankruptcy, because many complicated laws and procedures apply. If you need to file for individual bankruptcy as well, give us a call so we can guide you through the process.
Frequently Asked Questions
It might be best to close my small business due to its debts. Can you help?
We advise business owners who need advice about closing their doors due to debt. It’s a difficult decision, but sometimes closing makes the most sense financially and from a creditor protection standpoint.
My business received a Hardship Accommodation for its EIDL loan – what can I do now that the HA program has ended?
The Hardship Accommodation allowed reduced payments on EIDL loans, but it ended in March 2025. The SBA implemented a new program that allows some businesses to reduce their payments by 50% for six months. Your business may be eligible, or you may have other options, such as closing the business or filing for bankruptcy. Reach out to Daigle Law Office to discuss further.
Need Debt Advice in Massachusetts? Call Us
Are you looking for a dependable, experienced lawyer who can assist with a bankruptcy, even if you’ve already hired a debt settlement company? Daigle Law Office’s attorneys can provide you with experienced Massachusetts bankruptcy help. It’s not easy to deal with financial problems, and it’s frustrating when creditors hassle you about paying debts. Daigle Law Office helps clients dealing with tough situations who need solid, reliable legal advice. To schedule a consultation, call 508-771-7444 or use our convenient Contact Form.
