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When a favor turns into a financial burden, what happens next?
Co-signing a loan might be doing someone a big favor by helping them get a car, a credit card, or even their first home. But what happens if they can’t keep up with the payments? You could end up responsible for the debt, turning that favor into a financial burden. If bankruptcy is involved, a co-signed debt bankruptcy Medford attorney can help you understand your rights and explore ways to protect yourself.
If the borrower files for bankruptcy, you do not just get to walk away. Depending on the type of bankruptcy, you could still be responsible for the debt. Oregon’s laws explain exactly how this works, but understanding your rights ahead of time can save you from a financial nightmare. This article will break it all down so you know what to expect and what steps you can take to avoid a tough situation.
Quick Summary:
- Co-signing a loan makes you legally responsible for the debt if the main borrower stops making payments. This applies to car loans, credit cards, mortgages, and more. Even if you never use the loan, lenders can come after you for full repayment.
- Bankruptcy does not automatically protect co-signers from financial responsibility. If the borrower files for Chapter 7, creditors can still demand payment from the co-signer. Chapter 13 may offer temporary protection, but the co-signer could still be liable if the borrower fails their repayment plan.
- Co-signers can face serious financial consequences, including collection calls, lawsuits, and damage to their credit. A lender can sue for unpaid debts, leading to wage garnishment or asset seizure. Knowing your rights can help prevent unexpected financial hardship.
- There are ways to protect yourself if a borrower files for bankruptcy. Staying informed, negotiating with lenders, and checking for co-signer release options can help limit your risk. Setting aside money for potential payments and seeking legal advice can also provide financial security.
What It Means to Co-Sign a Loan
Helping someone get approved for a loan might seem like a kind and simple gesture. But when you co-sign, you are not just vouching for them, you are legally responsible for the debt if they cannot pay. If they miss payments or stop paying altogether, the lender can turn to you for the full amount. This applies to personal loans, car loans, credit cards, mortgages, and sometimes even student loans.
In Oregon, like most states, co-signers are subject to “joint and several liability”. This means the lender does not have to go after the main borrower first. They can demand payment from either of you, depending on who is more likely to pay. Even if you never used the money or benefited from the loan, you are still responsible for the debt. Before agreeing to co-sign, it is important to know exactly what you are signing up for.
Understanding Bankruptcy in Oregon
Bankruptcy can be a way for people to get out of overwhelming debt, but it does not always protect co-signers. In Oregon, the two most common types are Chapter 7 and Chapter 13. Chapter 7 wipes out many debts but may require selling off certain assets to pay creditors.
Chapter 13, on the other hand, sets up a repayment plan so debts can be paid over time. Each type has different rules on who qualifies and what property can be kept. While bankruptcy can give the main borrower a fresh start, co-signers may still be responsible for any remaining debt.
How Bankruptcy Affects Co-Signers in Medford, Oregon
If the main borrower files for bankruptcy, the co-signer does not automatically get the same protection. What happens next depends on the type of bankruptcy and how the debt is handled. Knowing the differences can help co-signers plan ahead and avoid unexpected financial trouble.
Co-Signer Liability in Chapter 7 Bankruptcy
Chapter 7 bankruptcy clears the borrower’s responsibility for the debt, but it does not erase the co-signer’s obligation. Once the borrower files for bankruptcy, here’s what the co-signer can expect:
- Creditors can still demand full payment from the co-signer, even though the borrower is no longer responsible. If the co-signer cannot pay, the lender may take legal action or send the debt to collections.
- The co-signer’s credit may take a hit if payments are missed or the debt is not paid off. Late payments, collection activity, or lawsuits can all show up on their credit report, making it harder to get approved for future loans.
- The “automatic stay” only protects the borrower, not the co-signer. While bankruptcy pauses collection efforts against the borrower, lenders can still go after the co-signer for the remaining balance. This means the co-signer could start receiving collection calls or legal notices.
- Once the stay is lifted, creditors can take legal action against the co-signer to recover the unpaid debt. This could lead to wage garnishment, lawsuits, or even asset seizure, depending on the situation.
Co-signing a loan comes with serious financial risks, especially if the borrower files for Chapter 7 bankruptcy. Understanding these risks can help co-signers prepare for what might happen next.
Co-Signer Protections in Chapter 13 Bankruptcy
Chapter 13 bankruptcy provides some protection for co-signers through a structured repayment plan, but this protection is not automatic. It only works if the borrower successfully completes their plan. Here’s what co-signers need to know:
- A “co-debtor stay” temporarily shields co-signers by stopping creditors from demanding payment while the borrower follows the repayment plan. However, this protection can be lifted if the lender requests it or if the borrower falls behind on payments.
- The protection only works if the borrower finishes the plan. If they fail to make all the required payments, the co-signer is still responsible for any remaining debt. This could lead to collection calls, legal action, or damage to the co-signer’s credit.
- Reaffirmation agreements can keep the co-signer legally tied to the debt. If the borrower agrees to continue paying a specific debt during bankruptcy, the co-signer remains liable as well. This means the lender can still pursue the co-signer if payments are missed.
- The repayment plan could keep the co-signer tied to the debt longer. Since Chapter 13 plans last three to five years, co-signers may be financially connected to the loan for a long time, increasing their risk if anything goes wrong.
While Chapter 13 offers more protection than Chapter 7, co-signers should still be prepared for potential financial consequences if the borrower struggles to complete their repayment plan.
How Co-Signers Can Protect Themselves
Co-signing a loan is a big responsibility, and if the main borrower struggles with payments or files for bankruptcy, you could end up paying the price. Taking the right steps early can help you avoid financial trouble and limit your risk.
Stay Informed
Keep in touch with the borrower and check in on their financial situation. If they start missing payments, knowing early gives you time to figure out what to do next. Even a simple conversation can help you prepare for any potential issues.
Negotiate with Lenders
Some lenders may offer new payment plans, settlements, or loan modifications to make things easier. It never hurts to ask if there are options to reduce your risk. You might be able to work out a solution that keeps both you and the borrower from falling deeper into debt.
Look Into a Co-Signer Release
Some loans allow co-signers to be removed after a certain number of on-time payments. Check with the lender to see if this is possible so you are not stuck with the debt. Getting released from the loan means you no longer have to worry about the borrower’s financial decisions affecting you.
Budget for Potential Liability
Since you are legally responsible for the debt, it is a good idea to set aside some money just in case. Even saving a little at a time can help if the borrower stops paying. A safety net can prevent a missed payment from turning into a bigger financial issue.
Seek Legal Advice
A Co-signed debt bankruptcy Medford attorney can explain your rights and options. If things get complicated, professional guidance can help you avoid financial trouble. Understanding your legal standing can make a big difference in how you handle the situation.
Being a co-signer can put you in a tough spot, but knowing your options and taking the right steps can help you avoid financial trouble. Whether it’s working out a deal with the lender, setting up a backup plan, or getting legal advice, having a clear strategy can give you more control over the situation.
Talk to a Co-Signed Debt Bankruptcy Medford Attorney Today!
If a co-signed loan is turning into a financial burden, you don’t have to deal with it alone. A Co-signed debt bankruptcy Medford attorney at Northwest Debt Relief Law Firm can help you understand what bankruptcy means for you and what steps you can take to protect yourself. Whether you’re being contacted by creditors or just worried about what happens next, we’re here to help.
We offer free debt solution consultations to go over your options and find the best way forward. Call us today to get the guidance you need and start taking back control of your finances!
State of Missouri v. Trump, No. 24-2332 (8th Cir. 2025): SAVE Student Loan Plan
The Eighth Circuit Court of Appeals ruled against the Biden administration’s Saving on a Valuable Education (SAVE) plan, declaring that the Department of Education exceeded its authority in implementing broad student loan forgiveness through an income-contingent repayment (ICR) plan.
Legal Basis for Ruling:
- Lack of Statutory Authority: The court found that 20 U.S.C. § 1087e(d)(1)(D), which authorizes ICR plans, does not permit loan forgiveness. Instead, repayment plans must be structured to ensure borrowers eventually repay their full loan balance, not receive forgiveness after a set number of years.
- Comparison to Previous Loan Plans: Other repayment programs, such as Income-Based Repayment (IBR), explicitly include forgiveness provisions in their statutory language. Congress did not provide similar language for ICR plans, meaning the Secretary of Education does not have the authority to create forgiveness within ICR.
- Major Questions Doctrine: The court applied the major questions doctrine, ruling that loan forgiveness on this scale requires clear congressional approval, which was absent.
- Biden v. Nebraska Precedent (2023): Similar to the Supreme Court’s decision striking down the HEROES Act loan forgiveness plan, the court ruled that the executive branch cannot unilaterally cancel debt without explicit legislative authorization.
Said the Court:
On the Lack of Statutory Authority for Loan Forgiveness: “The statute’s text and structure require ICR plans to be designed for a borrower to pay his or her loan balance in full through payments that can fluctuate based on income during the payment term. The Secretary has gone well beyond this authority by designing a plan where loans are largely forgiven rather than repaid.”
On the Application of the Major Questions Doctrine: “We are hard-pressed to conclude that Congress, by directing the Secretary to enact a repayment plan with varying payments based on income over a period not exceeding twenty-five years, believed it authorized the Secretary to wipe out any remaining principal or interest of any borrower in as few as ten years of low or no payments.”
On the Need for Congressional Authorization: “Rather than implying by omission or other ambiguities, Congress has spoken clearly when creating a repayment plan with loan forgiveness or otherwise authorizing it—explicitly stating the Secretary should cancel, discharge, repay, or assume the remaining unpaid balance. The statutory text enabling the creation of an ICR plan provides no comparable language.”
As a result, the court invalidated the SAVE plan in its entirety and blocked efforts to restore previous ICR-based forgiveness provisions.
Image courtesy of Flickr and Brittany Hogan.
Many clients have contacted our law firm asking how to sell a business subject to an SBA EIDL loan. There are two scenarios. In the first, the sales proceeds are sufficient to pay off the SBA loan (the easier scenario). In this case, one is required to contact the SBA and obtain prior approval, pursuant to SBA loan documents. In the second scenario, the sales proceeds are not sufficient to pay off the SBA loan (the more difficult and complex scenario), resulting in a shortfall ("Shortfall"). With respect to the Shortfall scenario, the Borrower/Seller must do the following: 1. Provide the SBA with information about the proposed sale (prior to closing), 2. Submit the required SBA documents for the sale to the SBA, 3. Send the SBA the proposed Sales Agreement, 4. Provide the SBA with a business valuation or appraisal of the business being sold, 5. Provide the SBA with financial statements for the business being sold, and 6. Provide the SBA with a proposal for handling the loan shortfall (an Offer in Compromise, payment by the Guarantor, Loan assumption by the Buyer, etc.).The proposed Sales Agreement should include a contingency clause stating that the sale is subject to SBA approval. Obtaining SBA approval can take months and may require negotiations with the SBA.Clients or their advisors having questions about the sale of a business subject to an SBA loan should contact Jim Shenwick, Esq.
Jim Shenwick, Esq 917 363 3391 [email protected] Please click the link to schedule a telephone call with me.https://calendly.com/james-shenwick/15minWe help individuals & businesses with too much debt!
Callie Glade, File Clerk
Callie Glade is the newest member of our team, She just started with us in January 2025.
Callie is a virtual assistant, an AI. She takes over one of the most important jobs in any law firm. She’s our file clerk. When you send in the required papers, she puts them in your file, where Vanessa and I can see them at any time. Callie comes to us through an artificial intelligence program called Glade.AI. She’ll keep in touch with you to make sure we have the papers we need to have to do what we are planning to do.
Callie doesn’t know anything about bankruptcy. But she is really, really good at keeping files.
Vanessa Hill, Paralegal
Vanessa Hill is my bankruptcy paralegal. She’s been with me for twenty-five years.
Vanessa’s job is to keep your case–and me–on track. If you have a question or problem, you can contact her at [email protected]. Or call her direct line: 703-962-1043.
When you fill in your Be Happy form and send Callie all the required documents, Vanessa will set up another meeting for you and I to talk again. She schedules all my appointments during your case–and for anything that might come up after.
Here are their pictures: Vanessa Hill, bankruptcy paralegal and Callie Glade, AI file clerk.
Callie Glade, virtual assistant and file clerk
Vanessa Hill, bankruptcy paralegal
The post Meet Vanessa, my paralegal, and Callie, my Virtual Assistant appeared first on Robert Weed Bankruptcy Attorney.
The National Law Review reports that the Subchapter V debt limit will increase to $3,424,000 on April 1, 2025. Currently, the Subchapter V debt limit is $3,024,725. The full article can be found at: https://natlawreview.com/article/bankruptcy-dollar-amounts-set-rise-significantly-april-1-2025 Clients or their advisors with questions about Subchapter V Bankruptcy should contact Jim Shenwick, Esq. Jim Shenwick, Esq. 917-363-3391[email protected]Please click the link to schedule a telephone call with me: https://calendly.com/james-shenwick/15minWe help individuals and businesses with excessive debt!
Keeping Your House as a Widow Filing Bankruptcy in Virginia
One of the tragedies of being a widow is this: You lose the protection for your house that Virginia law gives a married couple filing bankruptcy.
After losing her husband, a widow under Virginia law can easily lose her house to her creditors.
Bankruptcy is set up by the Federal government, but each state sets its own rules on keeping your house if you file Chapter 7. Virginia gives great protection for houses owned by a married couple for the debts of only one. That’s called tenants by the entirety. A widow, now single, after losing her spouse, is in danger of losing her house.
Virginia law allows a single person to protect $50,000 in real estate equity. That’s up from $5,000 a few years ago, But it’s still very low compared to most states. It doesn’t go ver far in Northern Virginia.
Can Bankruptcy Law Help a Widow Cleasr Her Debts and Keep Her House?
I’ve had two different widows contact me in January 2025. Through creative use of the bankruptcy law, it looks like both will be ok.
The post Keeping Your House as a Widow in Bankruptcy appeared first on Robert Weed Bankruptcy Attorney.
Will Bankruptcy Erase Rent Debt But End Your Portland Lease?
Financial struggles can hit hard for Portland renters. Missed payments strain budgets. Eviction risks grow. Bankruptcy might ease debt but changes your lease terms. A Portland OR bankruptcy lawyer can explain your options. This article breaks down how filing affects your housing rights.
Remember, bankruptcy and rental agreements in Portland rules differ by chapter. Landlords must also follow Oregon’s eviction laws during the process. Read on to learn how to protect your home while managing debt.
Quick Summary:
- Chapter 7 clears debts like credit cards quickly but often ends leases. Chapter 13 repays debts over three to five years, letting tenants keep rentals. Income limits decide eligibility: Chapter 7 requires below Oregon’s median income, while Chapter 13 needs steady pay for repayment plans.
- Filing Chapter 7 pauses eviction briefly unless landlords already have a court order. Tenants must repay past rent within 30 days or face lease termination. Ongoing rent must stay current post-filing. Landlords can evict fast once the court lifts protections.
- Chapter 13 bundles back rent into monthly payments, letting tenants stay if they pay on time. Proof of income and lease compliance are mandatory. Landlords can challenge plans if tenants break lease rules. Missing payments cancel the plan and risk eviction.
- Bankruptcy stops eviction unless landlords prove lease breaches. Tenants must pay new rent on time and follow lease terms. Oregon bans rent hikes or lease non-renewals due to filing. Security deposits remain protected if rentals stay undamaged.
- Renew leases by showing income stability or a co-signer. Secure new rentals with honest explanations of past bankruptcy and landlord references. Rebuild credit by paying bills on time and fixing credit report errors.
Bankruptcy Basics for Portland Renters
For renters asking, “What happens to my lease if I file for bankruptcy in Portland, OR?”—the answer depends on your chapter choice and landlord actions. Portland tenants facing debt have two bankruptcy options: Chapter 7 (debt cancellation) and Chapter 13 (debt repayment). Choosing between them depends on income, debt types, and whether keeping your rental matters.
Key Differences Between Chapters
Chapter 7 and Chapter 13 address debt differently and have unique impacts on leases. Consider these factors before filing:
- Chapter 7: Clears unsecured debts like credit cards or medical bills quickly (four to six months). However, landlords can stop leases once the automatic stay lifts. It’s best for renters who can relocate or accept losing their current rental.
- Chapter 13: Restructures debts (including back rent) into a three- to five-year payment plan. It allows tenants to keep their homes if they stay current on future rent. It’s ideal for those prioritizing housing stability.
Income Requirements
Oregon sets strict income rules for bankruptcy eligibility. These determine which chapter you qualify for.
- Chapter 7 means test: Your household income must be below Oregon’s median. Exceeding the median may require filing Chapter 13.
- Chapter 13 income proof: You need steady income (job, gig work, benefits) to fund a repayment plan. Courts verify you can cover monthly payments after essential expenses.
Chapter 7 Bankruptcy and Lease Termination
Chapter 7 bankruptcy clears debts quickly but often ends rental agreements. Tenants face tight deadlines to repay past-due rent or risk eviction. Understanding timelines and landlord rights helps renters prepare for the next steps.
Automatic Stay and Eviction Risks
Filing Chapter 7 pauses eviction temporarily, but landlords regain the power to enforce leases once the court lifts protections.
- Temporary protection: The automatic stay stops eviction cases that a judge has not decided yet. The stay may not apply if the landlord already has a possession judgment. Tenants get little time to act.
- Lease breaches: Landlords can ask the court to lift the stay if tenants violated lease terms before filing (e.g., unpaid rent, property damage). Judges often approve these requests quickly.
Post-Filing Scenarios
Tenants must address rent debt and ongoing payments to avoid losing housing. Outcomes depend on financial capacity:
- Repaying rent: Landlords may end leases unless tenants pay all arrears within 30 days of filing. Missing this deadline often leads to eviction.
- Ongoing rent obligations: Tenants must pay current rent post-filing. Failure to pay lets landlords evict even if past debts are discharged.
Chapter 13 Bankruptcy and Lease Retention
Chapter 13 lets Portland tenants keep their rentals by restructuring unpaid rent into manageable payments. This option needs strict adherence to court-approved plans and ongoing lease terms. Tenants must balance debt relief with housing stability.
Repayment Plan Structure
Chapter 13 repayment plans bundle past-due rent with other debts into monthly payments. These plans span three to five years and prioritize housing retention.
- Past-due rent: Unpaid rent is divided into monthly installments over the plan term. Tenants must also pay current rent on time. Missing new payments cancels the plan and risks eviction.
- Payment deadlines: Plans begin 30 days after filing. Courts dismiss cases if tenants fail to start payments promptly.
Lease Assumption Rules
Tenants must prove they can meet future lease obligations to keep their rentals. Landlords can challenge these assumptions in court.
- Income verification: Tenants must show stable income to cover rent and plan payments. Pay stubs or bank statements help prove financial capacity.
- Lease compliance: Violating lease terms (e.g., unauthorized pets, noise complaints) lets landlords evict despite bankruptcy. Courts lift protections for ongoing breaches.
Tenant Rights and Landlord Actions During Bankruptcy
Bankruptcy creates temporary protections for tenants but also sets rules landlords must follow. Oregon law balances debt relief with housing stability. Both parties have specific rights and duties during the process.
Automatic Stay Protections
Filing bankruptcy pauses eviction efforts in most cases. This legal shield gives tenants time to address rent debt or find new housing.
- Temporary eviction halt: The automatic stop begins immediately after filing. It blocks eviction unless the landlord already has a court judgment for possession. The stay may not apply if a judgment exists before filing.
- Landlord challenges: Landlords can ask the court to remove the stay. They must prove lease violations, property damage, or illegal tenant activity. Judges often approve these requests within weeks.
Tenant Responsibilities Post-Filing
Keeping a rental after bankruptcy requires strict adherence to lease terms. Courts focus on ongoing compliance over past debt.
- Current rent payments: Tenants must pay all rent due after filing. Missed payments let landlords evict even if past rent was discharged. Chapter 13 filers must also follow court-approved repayment plans.
- Lease compliance: Violating rules void bankruptcy protections. Landlords can evict for new breaches during or after the case.
Landlord Limitations
Oregon restricts how landlords respond to tenant bankruptcies. Retaliation or unfair penalties are illegal.
- Retaliation bans: Landlords cannot raise rent, reduce services, or refuse lease renewals solely because a tenant filed bankruptcy. Tenants can sue for damages if retaliated against.
- Security deposits: Bankruptcy filings don’t cancel deposit refund rights. Landlords must return deposits minus valid deductions for damages. Withholding funds without cause risks legal penalties.
Rebuilding Housing Stability After Bankruptcy
Life after bankruptcy needs rebuilding trust with landlords and credit agencies. Lease renewals and new rentals pose challenges but remain achievable. Practical steps help tenants prove financial reliability post-filing.
Lease Renewal Considerations
Renewing a lease after bankruptcy demands proactive communication. Landlords weigh credit history but must follow Oregon’s fair housing laws.
- Credit checks: Landlords may see the bankruptcy on your report but cannot reject you solely for a discharged case. Recent on-time payments and proof of income can ease concerns.
- Negotiation strategies: Offer pay stubs or bank statements to show steady income. A co-signer with strong credit may help secure renewal terms.
Securing Future Rentals
New landlords often screen tenants closely after bankruptcy. Honesty and preparation improve approval odds.
- Transparency: Briefly explain the bankruptcy (e.g., medical bills or job loss) during applications. Highlight recent rent payments or savings habits.
- Alternative documentation: Provide past landlord references confirming timely payments. Share employment records or tax returns to prove income stability.
Credit Recovery Tips
Rebuilding credit takes time but opens doors to better housing options. Consistent effort yields gradual improvements.
- Timely payments: Pay rent and utilities by the due date every month. These payments don’t appear on credit reports but landlords often verify them.
- Monitoring reports: Check free annual credit reports for errors. Dispute mistakes like unpaid debts already discharged in bankruptcy.
Call Our Portland OR Bankruptcy Lawyer Today!
Bankruptcy can remove rent debt but impacts leases differently in Portland. Chapter 7 may clear past dues but risk eviction. Chapter 13 lets you keep your home through a payment plan. Knowing Oregon’s laws helps balance debt relief and housing stability.
Need help? Northwest Debt Relief Law Firm offers clear guidance on bankruptcy and rentals. Our Portland OR bankruptcy lawyer team handles Chapter 7 and Chapter 13 cases—book one of our free debt solution consultations to explore your options. Call today to protect your home while managing debt.
In Chapter 13, in Virginia, your mortgage payment needs to be on-the-dot current.
Paying your mortgage payment by the 14th of the month (or later) gets your Chapter 13 case thrown out at the goal line. That’s because of a local bankruptcy rule, Rule 3002.1-1 in the Eastern District of Virginia
Why? Your mortgage is due on the first. They may give you a grace period until the 15th, but it’s due on the first. When you make your last Chapter 13 payment, the Chapter 13 trustee is required by Bankruptcy Rules 3002.1 to ask the mortgage company if you are current. That rule was considered a big victory for the consumer when it passed. The mortgage company had to say if they thought you were current or behind.
If you are your mortgage on the 14th instead of the first, your Chapter 13 will be disqualified at the goal line.
In this court, that victory turned into a nightmare, in a case called Evans. Now, if the mortgage company says you haven’t yet made this month’s payment, Thomas Gorman, the Chapter 13 Trustee, tells the Judge that your case should be thrown out. Unless you get caught up–and the mortgage company agrees in writing you are caught up–your case is tossed out. You are disqualified at the goal line.
What Should You Do?
When you are at the third to last payment on your Chapter 13, catch up the house! Make the mortgage payment on the first of the month. Eat oatmeal for a month, borrow from family, stop your 401k contribution, cut expenses everywhere. Get the mortgage payment in on the first of the month. Do what you have to do.
There is a detour
Suppose instead of being two weeks behind, you are three months behind on your mortgage payment. Sometimes that’s better. Why? The mortgage company will likley go to the judge and ask that your house be taken out of the Chapter 13 bankruptcy. That’s called relief from the automatic stay. If your house is taken out of the Chapter 13, then this problem doesn’t come up. The Chapter 13 Trustee won’t ask the mortgage company at the end 0f the case if you are current, and the judge won’t throw your case out.
Of course you do have to catch the house up outside of the bankruptcy.
If you are close to the end of the case and sitting a few months behind, you may want the mortgage company to take your house out of the bankrutpcy by relief from the automatic stay. If you can get close to caught up, they won’t forclose you. And the rest of your Chapter 13 debts can be cleared at discharge.
But if you are only close to caught up and the house is still inside the bankruptcy, your Chapter 13 is thrown out at the goal line. Those other debts you were paying in Chapter 13? They can all come back.
Do We Need to Talk?
Are you close to the end of your case and still struggling with the mortgage? Not sure what to do? Call Vanessa at 703-335-7793 and set up a time for us to talk.
The post Your mortgage payment needs to be on-the-dot current appeared first on Robert Weed Bankruptcy Attorney.
SBA EIDL Loans & the Case of the “Missing Guarantee”Many clients have recently contacted us with a similar issue. They claim they never personally guaranteed their SBA loans. However, after their SBA loans defaulted, the SBA is reaching out to them, stating that they did personally guarantee their business's SBA EIDL loan and are requesting payment.For context, federal law requires a personal guarantee when an SBA loan exceeds $200,000.There appear to be two scenarios where the "Missing Guarantee" issue arises. First, the SBA made a loan to a business exceeding $200,000 and failed to require an individual to sign a guarantee. Second, the SBA initially loaned less than $200,000 to a business, then provided an additional amount exceeding $200,000 by amending the loan documents but did not require the borrower to sign a guarantee.According to SBA records, since the loan exceeded $200,000, it should have been guaranteed.What should one do in this situation?Under New York law, a guaranty must be in writing to be enforceable. In Ashkir v. Wilson, No. 98 Civ. 2632, 1999 WL 710788, at *9 (S.D.N.Y. Sept. 13, 1999), it was stated that an agent is not personally liable for the obligations of his principal unless there is a written and signed personal guarantee.In European American Bank & Trust Co. v. Boyd, 516 N.Y.S.2d 714, 716 (2d Dept 1987), it was affirmed that a guarantee is enforceable as long as it is signed by the guarantor.While each state's law regarding guarantees may vary, most states require that a guarantee be in writing and executed to be enforceable.Our advice to individuals in these situations is: 1. Check your SBA loan documentation to ensure you did not sign a guaranty. 2. Request that the SBA send you a copy of an executed guaranty. 3. If the SBA cannot produce the guaranty, your position should be that you are not personally liable to repay the loan upon default. If the SBA were to litigate this position, we believe you would prevail, especially in New York State.
We advise all SBA borrowers with a case involving a "Missing Guaranty" to discuss their case with an experienced attorney as soon as possible.
Jim Shenwick, Esq 917 363 3391 [email protected] Please click the link to schedule a telephone call with me.https://calendly.com/james-shenwick/15minWe help individuals & businesses with too much debt!
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