SBA EIDL Loans and Bankruptcy in Florida: The Blanket Lien, the Personal Guarantee, and Treasury Collection

Own a Florida small business and still owe on a COVID disaster loan?

Florida's restaurants, charter operators, salons, contractors, and tourism businesses took Economic Injury Disaster Loans in large numbers in 2020 and 2021, when the season simply stopped. The loans carried long terms and low rates, and for a while the payments were deferred. They are not deferred now. Many Florida owners whose businesses never fully recovered are getting delinquency notices, Treasury collection letters, and offset notices on their tax refunds, and the first question is always the same: am I personally liable for this?

Who actually owes the loan

The answer turns on two facts: who the borrower was, and how much was borrowed.

If the business was a sole proprietorship, there is no separate entity. The owner is the borrower, and the loan is a personal debt from the start.

If the business was an LLC or corporation, the entity is the borrower. Whether the owner also owes the debt depends on the loan size. According to the SBA's published program terms for COVID-19 EIDLs:

• Loans of $25,000 or less required no collateral and no personal guarantee.
• Loans over $25,000 required collateral, taken as a lien on the business's assets.
• Loans over $200,000 also required a personal guarantee from owners of the business, signed on SBA Form 148, the Unconditional Guarantee.

So an owner whose LLC borrowed $150,000 usually signed nothing personally. The SBA can pursue the LLC and its assets, but not the owner's house or paycheck. An owner whose corporation borrowed $500,000 almost certainly signed a Form 148 and is personally liable for the full balance. Read the loan file before assuming either way; the signed documents control.

The UCC blanket lien

For loans over $25,000, the SBA filed a UCC-1 financing statement, in Florida with the Florida Secured Transaction Registry. The security agreement typically reaches essentially all business assets: equipment, inventory, accounts receivable, deposit accounts, and general intangibles. That lien follows the assets. If the business closes and the owner sells the equipment, the SBA's lien does not disappear because the business did.

Treasury referral and the Treasury Offset Program

When an EIDL goes seriously delinquent and the SBA charges it off, the debt is referred to the Department of the Treasury for collection under the federal debt collection statutes. Two things change at that point. Treasury adds collection fees that can significantly increase the balance. And the debt becomes eligible for the Treasury Offset Program, which intercepts federal payments owed to the debtor, most commonly federal income tax refunds, and can reach other federal payments as well. Treasury can also pursue administrative wage garnishment without first suing.

These remedies run against whoever owes the debt. If only the LLC owes it, the owner's personal tax refund should not be offset. If the owner signed a guarantee, or was a sole proprietor, the owner's refund is fair game. Owners who see an offset and believe they never guaranteed the loan should request the loan documents and dispute in writing.

Chapter 7: the entity and the owner are treated differently

A business entity can file Chapter 7, but it does not receive a discharge. 11 U.S.C. § 727(a)(1) limits the Chapter 7 discharge to individuals. A trustee liquidates the entity's assets, the SBA is paid from its collateral to the extent there is any, and the company is left as an empty shell. For a closed LLC with nothing left, an entity filing is often unnecessary.

The owner's personal guarantee is different. A guarantee is an ordinary unsecured personal debt, and it is generally discharged in the owner's individual Chapter 7 like a credit card. The exception that matters is 11 U.S.C. § 523(a)(2), which makes debts obtained by false pretenses, actual fraud, or a materially false written statement about financial condition nondischargeable. The government has pursued EIDL borrowers who misstated revenue, employee counts, or ownership on the application. An owner whose application was accurate is in a very different position from one whose application was not, and that question should be answered honestly before anything is filed.

Because EIDL debt is business debt, an owner whose debts are primarily business debts is not subject to the Chapter 7 means test at all. The means test applies only to debtors whose debts are primarily consumer debts.

Subchapter V

For an owner who wants to keep the business operating, Subchapter V of Chapter 11 is the usual tool. It was designed for small businesses: there is no creditors' committee, a standing trustee facilitates the plan rather than running the company, and the owner can keep the equity if the plan commits projected disposable income for three to five years. The SBA's claim is treated as secured only up to the value of the collateral it actually has a lien on, and the rest is treated as unsecured and paid what the plan can afford. Individual owners with primarily business debts can also use Subchapter V directly. The debt limit has changed several times since 2020, so confirm the current figure before relying on eligibility.

The SBA offer in compromise

Bankruptcy is not the only exit. Before a loan is referred to Treasury, the SBA will consider an offer in compromise, a lump sum or short payment schedule accepted in full satisfaction. The SBA evaluates the offer against what it could realistically collect, so it requires full financial disclosure from the business and any guarantor. An offer works best for an owner with modest assets, a closed business, and access to a lump sum. Once the debt is at Treasury, compromise is still possible but harder, and the added fees raise the starting number.

The Florida angle: homestead and tenancy by the entireties

Florida gives guarantors two protections that most other states do not.

Homestead. The Florida Constitution protects a primary residence from forced sale by most creditors, without a dollar cap, within the acreage limits. A judgment on a personal guarantee generally cannot be used to force the sale of a qualifying Florida homestead, inside or outside bankruptcy. Federal limits on homestead exemptions for recently acquired property can apply in bankruptcy, so the purchase date matters.

Tenancy by the entireties. Married Florida owners often hold their home, bank accounts, and brokerage accounts as tenants by the entireties. Property held that way can be reached only by a creditor of both spouses. If only one spouse signed the Form 148 guarantee, the SBA is a creditor of one spouse, and entireties property generally cannot be used to satisfy that debt. In bankruptcy, 11 U.S.C. § 522(b)(3)(B) preserves that protection for a Florida debtor whose spouse did not sign. The protection fails where both spouses signed, so check the guarantee signature pages carefully.

Frequently asked questions

My EIDL was under $200,000 and my business was an LLC. Can the SBA sue me personally? Generally not on the loan itself, because no personal guarantee was required at that size. Confirm by reading the signed documents.

Can Treasury take my Social Security? The Treasury Offset Program can reach a portion of certain federal benefits, subject to federal limits. If you receive benefits and guaranteed the loan, address this before it starts.

If you guaranteed an EIDL and want to know whether Chapter 7 is realistic for you, the free Florida means test calculator takes about three minutes and shows whether Chapter 7 is a realistic option before you pay for a consultation.