Are SBA Loans Dischargeable in a Chapter 7 Bankruptcy?

Submitted by Anonymous (not verified) on Mon, 07/01/2013 - 19:24
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Every now and then I am asked whether debt from an SBA Loan can be discharged in a Chapter 7 bankruptcy.  The short answer is "yes".

I am asked this question because it is linked to a government program.  However, there is nothing special about a SBA loan compared to any other private business loan when it comes to bankruptcy.  It is treated like every other loan.  Like all other loans, however, a SBA loan would not be dischargeable if the loan was obtained by fraudulent means.       

For the most part, business owners typically do not need to worry about whether their SBA loan will be discharged in bankruptcy.  However, there can be a foreclosure issue.  Many SBA loans are secured by a deed of trust on real property.  Because of the deed of trust, the lender will have the right to foreclose on the property.  In conclusion, even though you personally are no longer responsible for the debt, your lender can still sell your property through a foreclosure sale in a Chapter 7 bankruptcy.