Like me, many of my clients are “bottom line” thinkers so the second question they typically ask me (the first being “How much can I settle for?”) is: What can they do to me if we don’t reach a settlement? So here are some answers, in Q&A format:
Can they put me in jail? Yes, but it’s rare.
It’s a very rare occurrence for this to happen, and its only possible in some states (not all), but it could actually happen. How? Well, if a bank obtained a personal judgment against you, they could follow up with an information subpoena. An information subpoena is basically a legal way of saying “give us the information we are asking for or else.” The purpose of the bank’s information subpoena is to force you to disclose your income and assets so it can be determined if you have anything that can be used to satisfy the judgment. In certain states, if you fail to respond to an information subpoena, the bank could actually have you arrested.
Can they take my home? It depends.
If you pledged your home as collateral and there is equity in it, you can be sure that they’ll push for a foreclosure. If you didn’t pledge your home, that could make it much more difficult for the bank, although not impossible. If the bank obtains a judgment against you personally, they could attach that judgment to all your personal assets including your home. In many cases, a judgment lien cannot be foreclosed upon, but if you ever try to refinance or sell you home, a release of that lien will need to be negotiated.
Can they garnish my wages? Yes.
Can they take my tax refund? Yes.
Can they garnish my spouse’s wages if they did not guarantee the debt? No.
To garnish the wages of your spouse, who has no legal obligation to the lender, would be like them coming after me to pay your debt. When it comes to personal assets, that gets a little tricky because each state has their own property laws.
Can they repo my car, my lawn mower, or my prize stamp collection? Possible, but not likely.
Lenders typically only attempt to seize items with significant liquidation value. If you have jewelry or expensive art, they would go after those items, but your 2001 Toyota Camry is probably safe. By the time they hires a repo guy, paid to store it, and held an auction, it’s unlikely that they’d realize enough cash to justify the effort.
Can they shut down my other business that didn’t guarantee the debt? Yes
If your other business is owned by you, it would be considered an asset and/or a source of income. Such an entity would be fair game. If you owned the business with a partner who has no affiliation with the debt on the defunct business, that would make it harder to the lender to get to that business.
Can they still come after me if my business files for chapter 7 bankruptcy? Yes.
If your business operates as a separate legal entity (C-Corp, S-Corp, LLC etc) and you are a personal guarantor, a bankruptcy filing by the business does not prevent the bank from pursuing you personally.
Can the IRS come after me since the SBA is part of the Treasury? Yes.
In many cases, borrowers or guarantors of SBA loans are placed in something called the “Treasury Offset Program”, whereby they monitor your tax returns, and if you are entitled to a refund, they garnish those funds and apply them to the loan balance.