A Disaster Loan is a Disaster: Debt Resolution and Debt Forgiveness Nearly Impossible

It makes little sense, since the SBA has a definitive Offer in Compromise program; we initiate it frequently and resolve delinquent loans very effectively. There are procedures, guidelines, requirements and a resolution process. Works. It’s often hard to navigate, cumbersome to use, but since we understand the process well and have a lot of practice with it, and have a lot of success with it, we do it.

Not so with Katrina disaster loans or other disaster loans that go into default.

For some reason, they have not received the memorandum. They are not aware of any Offer in Compromise process and act as if they are not SBA-guaranteed loans. They cannot be resolved. We know that we have tried repeatedly and got nowhere each time.

Apparently, the SBA has determined in its own infinite wisdom that there is a significant difference between lending directly the money Congress grants them to support disaster situations and guarantees on loans made through traditional banks. For some reason, this is enough of a difference that there is an Offer in Compromise procedure for guaranteed loan issuances through banks and direct loan issuances directly from the SBA.

Why there is a difference, I don’t know. I can’t even understand the logic behind such a demarcation, but there is.

A defaulted disaster loan goes directly to the Department of Justice, the US Treasury and is handled by an Assistant United States Attorney and prosecuted as if the default were a crime.

Now, in fact, we have taken the defense of such a situation through the Federal District Court system and litigated it before a Federal District Judge and achieved a great discharge, our typical 90% discharge on a $1.2 million loan. dollars, however, the sad part of it is the huge legal fee borrowers had to pay for such justice. It took years and a small fortune for legal fees that could have been used to reduce the debt, but instead were used to prove that the borrowers were broke and out of work and couldn’t afford to pay another dime. In fact, the payment was structured over several years.

Picture the scene, your home and business razed to the ground, your entire community gone, and the SBA is on site working from a mobile office, offering on-site cash to rebuild. The rebuild didn’t go well, it didn’t bring back the business or the market, and the revenue is gone seemingly forever, and then the second disaster strikes, the SBA comes collecting their reimbursement, and although the borrower never recovered from the disaster, he lost everything he owned. . , the US Treasury is going to collect no matter what.

Despite the facts and despite the reality that the SBA has a debt forgiveness plan, disaster loans are not included in this process. Let’s hit borrowers again, says SBA, collect no matter what… and they do… no matter what, and until you get to US Federal District Court, no settlements available . We know. We are defending a handful and we are not winning. We are losing.