IS THERE A STATUTE OF LIMITATIONS ON THE COLLECTION OF SBA LOANS?
Yes, there is. The U.S. Government has 6 years to sue you under a contract, such as an SBA loan contract.
Under a federal statute more than 50 years old the Government can “recover upon a contract for money damages” only if its lawsuit against you is “filed within 6 years from the date the cause of action accrued.” See 28 U.S.C. Section 2415(a). The date that a cause of action accrues is when you defaulted on the debt, or the last time you made a payment or otherwise acknowledged the debt in writing.
For example, if you defaulted on an SBA loan on January 1, 2011, then generally the Government would only have up until about January 1, 2017 to sue to collect from you. Otherwise any lawsuit filed after this date would be barred by the above 6-year federal statute of limitations defense.
SO DOES THAT MEAN YOU DON’T OWE AN SBA DEBT AFTER WAITING OUT THE 6 YEARS?
Unfortunately, just because the Government can no longer sue does not mean it can no longer collect.
The very last subsection of the Section 2415 cited above gives the Government the ability to pursue a debt, or “claim,” through “administrative offset,” regardless of the 6-year statute of limitations:
this section shall not prevent the United States or an officer or agency thereof from collecting any claim of the United States by means of administrative offset
WHAT’S AN ADMINISTRATIVE OFFSET?
An administrative offset is defined in federal law as “withholding funds payable by the United States . . . to, or held by the United States for, a person to satisfy a claim.” See 31 U.S.C. Section 3701(a)(1). In other words, it’s a way for the federal government to pay itself on a debt you owe—such as an unpaid SBA loan—by taking it out of funds the government would otherwise pay to you—such as tax refunds or any kind of governmental benefit. It’s “offsetting” (or seizing!) money it owes you to pay on your SBA loan.
The seizures are done through the Treasury Offset Program (TOP) administered by the Bureau of Financial Management Services, a branch of the U.S. Department of Treasury.
TOP can authorize seizure of your wages including military pay (without a lawsuit and judgment), and offsets of Social Security benefits (but not Supplemental Security Income), Retirement benefits (again, including military retirement pay), contractor/vendor payments, travel advances and reimbursements, and your federal income tax refund. TOP also has a general provision allowing collection from federal payments that are otherwise not exempt by law.
WHAT IS THE PROCEDURE AFTER DEFAULTING ON AN SBA LOAN, INCLUDING REFERRAL TO THE TREASURY OFFSET PROGRAM?
The SBA Collection process is laid out in the SBA Standard Operating Procedures (SOPs). These SOPs are incredibly detailed, actually consisting of a series of procedure manuals totaling thousands of pages. The procedures pertinent here are in SOP 50 57 2 about the servicing and liquidation of SBA’s 7(a) Loans, its “flagship loan guaranty program.” At 162 pages it’s detailed enough!
WHAT ARE MY RIGHTS WHEN MY SBA LOAN IS IN THE TREASURY OFFSET PROGRAM (TOP)?
The legal procedures for TOP, and your rights under it, are laid out in 31 U.S.C. Section 3716.
For example, before any collection by administrative offset SBA must give you—
(1) written notice of the type and amount of the claim, the intention of the head of the agency to collect the claim by administrative offset, and an explanation of the rights of the debtor under this section;
(2) an opportunity to inspect and copy the records of the agency related to the claim;
(3) an opportunity for a review within the agency of the decision of the agency related to the claim; and
(4) an opportunity to make a written agreement with the head of the agency to repay the amount of the claim.
The SBA can send the information about your debt to TOP as soon as the debt is more than 90 days delinquent, although things usually don’t move that fast.
Among all the different types of benefits and payments owed to you that TOP can offset to pay an SBA debt, depending on your circumstances there might be limits on how much can be seized at any given time. All or part of your payments could be seized.
Again, you’re supposed to receive notice that this is happening. But that doesn’t always happen. Or the notice may have been years or even decades ago!
Treasury says that taxpayers who have concerns about the status of a debt or an offset can call the TOP Call Center at 800-304-3107 to ask questions. It doesn’t do much good to call the paying governmental entity (for example, the Social Security Administration) because these entities can’t reverse an offset or give you meaningful information about the SBA debt being paid.
On the other hand, although TOP can answer some questions it can’t make arrangements for you to pay off your debt, tell you when the debt was alleged to have been incurred, or even tell you how much you owe! TOP can only give you the contact information for the SBA office attempting to collect the debt.
Beyond the debt, plus any penalties and interest, by law you may be charged an administrative offset fee. “The Secretary of the Treasury may charge a fee sufficient to cover the full cost of implementing this subsection.” See 31 U.S.C. Section 3716(c)(4). Yes, you may have to pay the government a fee to help it make you repay your debt!
So, yes, you have some rights under TOPS. But once you get to this stage they are limited. If you have a steam of benefits you’re relying on, bankruptcy may be your only practical refuge.
HOW LONG CAN THE GOVERNMENT COLLECT AN SBA LOAN THROUGH ADMINISTRATIVE OFFSET?
This is where it gets truly nasty.
Up until 2008 the above Section on administrative offset contained the following language:
This section does not apply—. . . to a claim under this subchapter that has been outstanding for more than 10 years
See Notes about Amendments to 31 U.S.C. Section 3716(e). So there was effectively a 10-year statute of limitation on collection through administrative offset.
But then in 2008 this 10-year limitation was eliminated.
The following sentence was buried in that year’s 663-page farm bill:
no limitation on the period within which an offset may be initiated or taken pursuant to this section shall be effective
(This sentence—unrelated to anything else in this massive bill of more than a quarter million words —is really buried: it’s in a section of the bill labeled “Miscellaneous,” and then within “Other Miscellaneous Provisions”!)
This sentence replaced the 10-year limitation on administrative offsets with no deadline whatsoever. In other words, the government gave itself the right to chase SBA debtors forever through offsets. So at any point in your life, even decades after defaulting on an SBA loan, even without being sued and a judgment entered against you, you can be tracked down and be made to pay your SBA debt.