Expert: Mark J. Markus- California Bankruptcy Attorney - 5/4/2009

Question
We got a SBA loan with my husband signing an unconditional guarantee with our house as collateral and my guarantee being limited to the equity in the house.The business has closed and we have defaulted on the loan which is about 400k.We also have business credit card debt of about 70k and outstanding rent of about 35k to the business landlord.The total debt therefore amounts to about 500k.The SBA has sent us the offer in compromise forms.My husband makes about 120k and I make about 80k from our jobs currently.My questions are -
1) If we filed a Chapter 7(assuming our very able lawyer can get us qualified on the basis of 'business debt' , would the SBA loan get discharged?
2) If yes, what would the SBA's lien that would still continue on our house effectively mean?
3) After filing Chapter 7 ,could we negotiate with the SBA to release the lien by paying them what they would get from foreclosing on the house OR Would the SBA still be entitled to 400k and have a right over my our disposable income(as in the Offer in Compromise settlement).

Basically we are trying to figure out of filing a Chapter 7 would help us with the SBA guaranteed loan in any way or not.We would hate to be in a situation where we file a Chapter 7 and are still stuck with a Offer in Compromise type of settlement to release the lien.


Thanks in advance for your advice.

Answer
1. Yes, the SBA loan should be dischargeable.

2. They would have a lien which they could collect on if you sold or refinanced the property and there was available equity.  They cannot take any further collection actions, however.

3.  Yes, you can certainly negotiate the lien release.