Today’s article is about a client I have who recently, after a couple years of financial turmoil, has seen the light at the end of the tunnel. To be more accurate, the light at the end if his tunnel is so bright that he needs sunglasses and sunblock.
When he first came to me, Steve (not his real name) owed about $750K. Things were looking pretty bleak. He was working for himself, and when his relationship with his partner soured, the business went into the toilet. On top of that, he was going through a divorce, which only amplified his financial strain. Despite that, Steve was trying to stay positive, and came to me in hopes that I could help him take the first step towards a financial recovery. At first, Steve wanted to make payments over time, but since he didn’t have consistent income, the SBA was not keen on a payment plan. The only savings he had to his name was an IRA with about $50K in it. At first, he was hesitant to liquidate that account, since it represented all he had left in terms of savings. I explained to Steve that while it wasn’t desirable to use his only savings, it was the best alternative in a bad situation. Sure, he would have nothing left, but he’d also have $700k forgiven if the offer was approved.
After some lengthy discussion, Steve decided to offer the $50k in a lump sum, and the SBA accepted it. It’s fair to say that he winced a little when he had to write that check, but it turned out to be the right thing for him to do. 6 months later, Steve’s new business venture had a big score that yielded a huge six-figure pay day.
So why was the settlement the right way to go?
1) By settling with the CDC/SBA, the file stayed out of the hands of the US Treasury. Had the file been sent to the Treasury, they would have added a 28% penalty to the $750K and demanded a settlement of about $400K. By settling sooner than later, he saved himself about $350k (although, let’s admit it, if it went to the Treasury he could have never settled) and his future earning went into his pocket instead of the SBA or Treasury.
2) Instead of filing for bankruptcy and ruining his credit, he opted to settle. His credit was not hurt by the settlement (most SBA loans don’t show up on personal credit reports), yet he is no longer personally liable for any of the debt. By not filing for bankruptcy, he was able to start a new business and will be able to finance his business in the future (something a bankruptcy would surely get in the way of).
3) Once the settlement was paid, my client was free to go earn money with no risk of having it garnished or levied. His six-figure score allowed him to take care of some residual debts, and he now has a very bright future ahead of him, and he will never have to look over his should and wonder if (or when) the SBA, Treasury, or a collection company will come calling for his SBA debt.