EIDL Collections Guide
What Really Happens When You Can't Pay
The SBA promised emergency relief. Many businesses got a ticking time bomb instead. Here's the complete guide to EIDL collections, defaults, and your options when the bill comes due.
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What's In This Guide
The EIDL Debt Crisis
Between 2020 and 2021, the SBA disbursed nearly $400 billion in EIDL loans to small businesses and sole proprietors. These loans were supposed to be a lifeline during an unprecedented crisis. For many borrowers, they've become an anchor.
Now the 30-year repayment period has begun, and many borrowers are discovering several harsh realities:
- The SBA has extraordinary collection powers that most creditors don't have
- Treasury offset can take your tax refunds without court approval
- Hardship programs exist but the SBA rarely advertises them
- Communication is nearly impossible when you actually need help
- The rules keep changing and different agents give different answers
This guide breaks down exactly what happens when you can't pay your EIDL, what powers the SBA actually has, and what options you have.
The Collections Timeline
Understanding when and how collections happens helps you prepare and take action at the right time.
Day 1-30: Missed Payment
Your first missed payment triggers a grace period. The SBA may not contact you immediately. Interest continues to accrue. At this stage, you can usually just make the payment and move on.
Day 31-60: Late Notices Begin
You'll start receiving late notices via email and mail. The loan is now considered delinquent. Call volume to SBA increases dramatically but you can still resolve this relatively easily.
Day 61-90: Acceleration Warning
The SBA may send an acceleration notice threatening to demand the full loan balance. This is your critical window to request hardship options or make payment arrangements.
Day 90+: Default Status
The loan is officially in default. The SBA can now accelerate the entire balance and begin collection procedures. The debt may be transferred to Treasury for collection.
120+ Days: Treasury Referral
Debts over $25,000 are typically referred to the Treasury Department's Bureau of Fiscal Service. Once Treasury has the debt, they can use offset and other federal collection tools.
Ongoing: Active Collections
Treasury offset begins. Tax refunds are seized. Administrative wage garnishment may start. Credit reporting occurs. Penalties and interest continue accruing.
Key Insight
The best time to act is before your loan goes to Treasury. Once it's referred, your options become more limited and the process becomes more bureaucratic. If you're struggling, contact the SBA sooner rather than later.
Treasury Offset Program (TOP)
The Treasury Offset Program is the federal government's most powerful collection tool, and it's what makes federal debt different from any other type of debt.
What Can Be Offset
| Payment Type | Can Be Offset? | Limits |
|---|---|---|
| Federal Tax Refunds | Yes - 100% | Entire refund can be taken |
| State Tax Refunds | Yes - 100% | Entire refund can be taken |
| Social Security (Retirement) | Yes - Partial | Up to 15%, must leave $750/month |
| Social Security Disability (SSDI) | Yes - Partial | Up to 15%, must leave $750/month |
| SSI (Supplemental Security Income) | No | Protected from offset |
| Federal Salary | Yes | Up to 15% of disposable pay |
| Federal Retirement (OPM) | Yes - Partial | Varies by program |
| Vendor/Contractor Payments | Yes - 100% | Federal contract payments seized |
How Offset Works
Unlike a lawsuit where you go to court, Treasury offset is automatic. Once your debt is in the system:
- Every federal payment you're owed is checked against the debt database
- If there's a match, the payment is reduced or eliminated
- You receive a notice explaining the offset (often after the fact)
- The seized amount is applied to your EIDL debt
The Tax Refund Trap
Many borrowers adjust their withholding to get larger refunds, not realizing they're essentially giving free money to the Treasury. If you're in offset status, consider adjusting your W-4 to reduce your refund to near zero. You'll keep more of your money throughout the year.
Challenging an Offset
You can request a review of an offset, but grounds are limited:
- Identity theft: The debt isn't yours
- Already paid: You have proof the debt was satisfied
- Bankruptcy discharge: The debt was discharged (rare for EIDL)
- Statute of limitations: Complex for federal debt
- Hardship: Limited circumstances for Social Security
Administrative Wage Garnishment
Unlike private creditors who must sue you and get a court order, the federal government can garnish your wages administratively. This is called Administrative Wage Garnishment (AWG).
How Much Can Be Garnished
Federal law limits garnishment to the lesser of:
- 15% of your disposable pay, OR
- The amount by which your disposable pay exceeds 30 times the federal minimum wage
For 2026, with minimum wage at $7.25/hour, that means the first $217.50/week is protected from garnishment.
Your Rights Before Garnishment
Before starting garnishment, the government must:
- Send you written notice of the debt and intent to garnish
- Give you an opportunity to review the debt records
- Allow you to request a hearing within 15 days
- Consider hardship claims
Request a Hearing
If you receive a garnishment notice, you have 15 business days to request a hearing. Grounds for a hearing include:
- The debt amount is incorrect
- You've already established a payment plan
- Garnishment would cause extreme financial hardship
- The debt has been paid or discharged
Hardship Programs
The SBA does have hardship options, though they don't advertise them well and getting approved requires persistence.
Payment Deferment
You may be able to defer payments for up to 6 months at a time if you can demonstrate temporary hardship. Interest continues to accrue during deferment.
+ Provides breathing room
+ Keeps loan out of default
- Interest keeps accruing
- Not a long-term solution
Reduced Payment Plan
In some cases, the SBA may agree to temporarily reduced payments based on your ability to pay. This requires documenting your financial situation.
+ Lower monthly burden
+ Shows good faith effort
- Extends loan term
- Hard to get approved
Hardship Discharge (Rare)
In extreme cases of permanent disability or other circumstances making repayment impossible, the SBA may consider discharge. This is extremely rare and requires extensive documentation.
+ Could eliminate debt
- Very rarely granted
- Extensive documentation required
- May have tax consequences
How to Apply for Hardship
- Gather documentation: Tax returns, bank statements, proof of income, medical records if applicable, business financials
- Write a hardship letter: Explain your situation clearly and specifically
- Contact SBA: Call and request hardship review (be prepared for long holds)
- Follow up in writing: Send everything certified mail with tracking
- Document everything: Keep records of every call and letter
Use our FOIA Request Generator and Letter Templates to help with this process.
Offer in Compromise (OIC)
An Offer in Compromise is a settlement where you pay less than the full amount owed. For SBA debt, this is handled differently than IRS offers in compromise.
When OIC May Work
- You have a lump sum available (often from family, home equity, or retirement funds)
- Your income and assets genuinely can't support full repayment
- The SBA determines collecting more is unlikely
- Your business has closed and you have limited future earning potential
What to Expect
OIC for EIDL loans is not common and the SBA hasn't published clear guidelines. However, some general principles apply:
- Offers should be based on your realistic ability to pay
- Expect to provide complete financial disclosure
- The SBA will consider your assets, income, and future earning capacity
- Having an attorney or experienced advocate helps
Tax Consequences
If the SBA forgives a portion of your debt through OIC, the forgiven amount may be considered taxable income. You could receive a 1099-C for the canceled debt. Consult a tax professional before accepting any settlement.
Bankruptcy Options
Bankruptcy is a last resort, but for some borrowers, it may be the only path forward. EIDL loans present unique bankruptcy challenges.
Chapter 7 (Liquidation)
Chapter 7 typically discharges most unsecured debt. However, EIDL loans with a personal guarantee may be more complicated:
- Loans under $25,000 often didn't require collateral
- Loans over $25,000 may have a UCC lien on business assets
- Loans over $200,000 may have personal real estate liens
The personal guarantee means you're personally liable even if your business closes.
Chapter 13 (Repayment Plan)
Chapter 13 allows you to reorganize debts and pay over 3-5 years. Benefits include:
- Stop collections and garnishment immediately
- May be able to pay less than full amount
- Keep assets while repaying
- Remaining balance may be discharged after plan completion
Can EIDL Be Discharged?
Unlike some government debts (student loans, most taxes), SBA loans are generally dischargeable in bankruptcy. However, any collateral or liens must still be dealt with. Consult a bankruptcy attorney to understand your specific situation.
State Exemptions
What assets you can protect in bankruptcy varies dramatically by state:
- Texas and Florida: Unlimited homestead exemption
- California: Moderate exemptions, wildcard option
- Other states: Vary widely, some very limited
Protecting Yourself
Document Everything
- Keep copies of every SBA communication
- Record dates and names of phone calls
- Send important communications certified mail
- Screenshot portal interactions
- Keep original loan documents
Adjust Your Finances
- Adjust W-4 withholding to minimize refunds subject to offset
- Understand what assets are protected in your state
- Consider whether retirement accounts provide better protection
- Know your rights regarding exempt income (SSI, VA disability)
Know When to Get Help
Consider consulting professionals when:
- Your loan is over $50,000
- You're facing wage garnishment
- You're considering bankruptcy
- You have significant assets to protect
- The SBA is not responding to hardship requests
Congressional Intervention
When all else fails, contacting your Congressional representatives can sometimes help. They have constituent services staff who can make inquiries on your behalf. This won't change the law, but it can sometimes get a stuck case moving. Use our Congressional Letter Template to get started.
Real Borrower Experiences
Understanding what others have faced can help you prepare and know you're not alone.
Common themes we see:
- Borrowers receiving contradictory information from different SBA agents
- Hardship requests ignored or denied without explanation
- Tax refunds offset without clear prior warning
- Portal issues causing payment failures attributed to borrower
- Business closures but personal liability remains
Need Help With Your EIDL Situation?
Use our free tools to generate FOIA requests, calculate your debt, and access letter templates.