Expert: Mark J. Markus- California Bankruptcy Attorney - 12/17/2007

Question
QUESTION: I recently found out that two of my business loans are SBA loans.  They are guarenteed at 50%.  Are these dischargeable in bankruptcy?

ANSWER: I don't know what you mean by "they are guaranteed at 50%".  Was this business a corporation or partnership?  Are you the guarantor?  Are you referring to a bankruptcy for yourself, or for a corporation or partnership?

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QUESTION: The bank officer said that these loans are guaranteed by the SBA at 50%.  I was advised by a bankruptcy attorney to file personal and not business because it costs 2.5 times as much and I can accomplish what I want personally without paying 5k.  I personally guaranteed these loans too.

ANSWER: I still don't understand what you're saying.  Your SBA loans are guaranteed by the SBA?  What does that mean?   You still haven't told me whether it's a separate legal entity that owes this debt or yourself personally, but if it's you personally, you should be able to discharge it in a bankruptcy case for yourself.

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QUESTION: The Small business Association provides insurance to lenders who provide loans to small businesses that might not qualify otherwise. If the loan goes bad, it is my understanding, that the SBA pays the lender on the loan(50% guarantee) then starts collection with the borrower.  The lender also had me personally guarantee the loan and they put a third mortgage against my home.  There is no equity after the second mortgage.  I am set up as an LLC and my accountant set me up as a Subchapter S Corp last year for tax purposes.  I can't find any information on what happens if you go bad on an SBA loan but I was told by an attorney that they are not dischargeable.  If they disclosed this to me I never would have taken the loans in the first place.  Is there any info. on these types of loans or what happens after a bankruptcy?

Answer
The fact that the SBA loan is insured has no effect at all on your, or your LLC's, respective liabilities.  

As to you personally, the debt is dischargeable in a bankruptcy that you file personally.  However, since you gave them a lien against your property, that lien will remain against your property after the discharge.

The debt the LLC owes might be dischargeable in a Ch. 11 case filed by the LLC, but that is a very complicated analysis and way beyond the scope of this service.