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    1 Reply Latest reply on Feb 1, 2011 12:05 PM by

    Will an SBA loan be discharged in bankruptcy?


      Does anyone know if an SBA loan will be discharged if a person files for personal bankruptcy?  I know student loans can't be and since SBA is goverment money, I am wondering if its the same for SBA loans,

        • Will an SBA loan be discharged in bankruptcy?

          SoCal - An SBA loan can definately be discharged in a chapter 7 personal bankruptcy.  I see it all the time.  The one thing to remember is that even if your personal guarantee is discharged, that will NOT remove a lien on your home, so even if you file for Ch 7 BK and get discharged, you will still need to negotiate the release of the lien. 


          The other thing to keep in mind is that if you file personal BK, the bank can still legally pursue the borrower if it is a corporare entity (in most SBA loans, that is indeed the case).  So if your business is still open and operating, you still run the risk of losing it unless that entity files for BK as well. 


          As a practical matter, if you run a Quiznos (I'm guessing from your username), its possible that your lender could get a court order to seize the business assets and shut the business down.  If you do something that is more service related, like a CPA, its unlikely that they would spend the time and money to shut you down since there are really no business assets that contain any significant value.