$500K EIDL Loan Bankruptcy

ByDARCY

$500K EIDL Loan on verge of bankruptcy 

I have a question. We have a 500K eidl. no more hardship. We are no longer running that business and have started another one in a completely different field-because of covid. They forced us to both be PG to get the funds we needed to keep our employees(so we thought, right). We live in FL with homestead. We have some funds in a trust, under 30k, we have minor children. If we file personal bk, will they come after our new business? Its paying the bills but not making us rich. We have paid over 90k on our eidl and still have a balance of 525K of the original loan of 500k. Its a nightmare.

That’s a very real and difficult situation — and you’re not alone in it. Here’s how this typically plays out for borrowers in your position:

💡 Key Points About EIDL and Bankruptcy

1. SBA EIDL loans with a Personal Guarantee (PG):

Since you and your spouse personally guaranteed the loan, the SBA can pursue you personally if the business defaults. However, the SBA’s recourse is limited to non-exempt assets — and Florida’s laws are among the most protective in the nation.

2. Florida homestead exemption:

Your primary residence is fully protected under Florida’s constitutional homestead exemption (unlimited value, up to ½ acre in a city or 160 acres outside). The SBA cannot force a sale of your primary home.

3. Your new business:

If the new business is a separate legal entity (new LLC, new EIN, not the same legal successor), it is generally not automatically liable for the EIDL loan.

However:

  • If you use the same bank accounts, name, or assets, the SBA or a bankruptcy trustee could argue “successor liability.”
  • Be sure the new business operates independently and doesn’t use collateral pledged to the old EIDL loan (vehicles, equipment, etc.).

4. The trust and small savings:

A properly structured irrevocable trust or a spendthrift clause may protect those assets, but if it’s revocable or you’re the trustee/beneficiary, it’s likely reachable in a personal bankruptcy. You’ll want a bankruptcy attorney to review how it’s titled.

5. Personal bankruptcy options:

  • Chapter 7: wipes out personal liability on the EIDL, but you could lose non-exempt property (though in FL, that’s minimal for most).
  • Chapter 13: allows you to keep everything but set up a repayment plan.
  • Chapter 11 (Sub V): if the loan was business-related and you still operate any part of that company, this could restructure it.

⚠️ Practical Considerations

  • The SBA usually assigns defaulted EIDL loans to the Treasury’s Bureau of Fiscal Service (BFS) for collection — they can garnish future federal tax refunds, Social Security, and federal payments, but they cannot garnish private wages without a judgment.
  • Once a personal bankruptcy is filed, collections must stop, and you can discharge your PG liability.
  • The business that received the loan can be dissolved — it remains liable, but if it has no assets, there’s little for the SBA to recover.

✅ Recommended Steps

  1. Consult a bankruptcy attorney who’s familiar with SBA and EIDL-related filings (not all are). They can determine whether to file personally, corporately, or both.
  2. Separate all finances between the old and new business (bank accounts, ownership structure, EIN, etc.).
  3. Preserve your Florida exemptions — homestead, personal property, and retirement accounts are well-protected.
  4. Document how your new business is unrelated to the old one — different industry, customers, name, and capital sources.

📞 If You Need Help

If this feels overwhelming, US Tax Relief has extensive experience helping taxpayers manage SBA and IRS debts. We can review your financials confidentially and outline options — from bankruptcy coordination to IRS hardship status or offers in compromise.

👉 Call 1-844-4-IRS-FIX or visit TaxReliefProgram.org

📧 [email protected]

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