How are small business loans treated in bankruptcy?

Small business loans (or SBA loans) are loans taken out for business and backed by the government.  These loans are available to help new and small business owners grow their company.  However, with the economy we are seeing now, luck seems to play a more important role than the amount of money or capital you start with.  In any case, that is besides the point for this article.  In many cases, businesses fail for whatever the reason.  The next step is to either try to rework the small business loan or to file bankruptcy.

Small Business Loans are Dischargeable in Most Cases

The big questions is whether the small business loan is dischargeable in bankruptcy.  The common belief (or myth) is that small business loans are not dischargeable.  Like student loans, they are backed by the government and cannot be discharged with bankruptcy.  This is false.  Small business loans ARE dischargeable.

Secured or Unsecured Small Business Loan

Small business loans are treated like any other unsecured or secured debt.  That is the important part.  Is the small business loan secured on collateral or property, meaning is it attached to a home, car or any other real estate or property?  If it is not attached to anything, than the SBA loan should be discharged if your case goes through without any other issues.

Motion to Avoid Liens by Small Business Loans in Bankruptcy

On the other hand, if the small business loan is secured, then you have to take some extra steps in attempt to avoid the lien.  The main questions is whether your property has equity.  If there is no equity, then avoiding the lien and getting a discharge of the debt should not be too difficult.  If there is equity in the property, then it becomes much more complex.  In this case, I would recommend contacting one of our bankruptcy attorneys at Tran Bankruptcy Law to discuss this in further detail.  We service, Orange County, Los Angeles, and Riverside, California.