Phase 2 of 3
In default at SBA — and why the OIC is an illusion
Offers in Compromise sound great. In practice, they are rare as hen’s teeth.
On an SBA 7(a) loan through a bank, a chain already ran: the lender demanded, accelerated, liquidated its collateral, and asked SBA to honor its guaranty. SBA paid and now owns the deficiency. On an EIDL there’s no purchase step — SBA has always been your lender.
The Offer in Compromise package
SBA Form 1150Offer in CompromiseThe lump sum offered and its source. Signed under 18 U.S.C. § 1001 penalties.Official SBA form pageSBA Form 770Financial Statement of DebtorUnder penalty of perjury. Required from every obligor and guarantor being compromised.Official SBA form pageIRS Form 4506-CTax transcript authorizationLets SBA verify your returns against your 770.Your attorney or the servicer files this through the IRS IVES program — it isn’t a form you submit on your own.OIC TabsSBA’s assembly checklistMandatory; submissions without it sit. An internal SBA/lender checklist, not a public download.All of it goes to the Commercial Loan Service Center. That’s the easy part.
Now the part that isn’t on the form
SBA’s criteria require that the borrower has ceased operations and all business collateral has been liquidated before an offer is considered.
That’s the whole problem. You cannot compromise an SBA loan and keep your business. Every SBA blanket lien covers substantially all business assets, so “liquidate the collateral” means “liquidate the company.” The OIC is a post-mortem instrument, built for the borrower whose business is already dead.
If your business has a future, SBA’s own standard operating procedures have closed the settlement door to you. That’s not a negotiating posture you can charm past — it’s written policy, and the staff reviewing your file have no authority to waive it.
For COVID EIDL it’s worse: SBA has approved essentially no Offers in Compromise on them. The program exists on paper. Anyone selling you an EIDL settlement service should be asked, in writing, how many they’ve closed.
If you are considering restructuring your business, you can’t ask the SBA to agree to this — you must force them to agree through a Chapter 11 plan — and if you’re a smaller business, through a Subchapter V Chapter 11 plan. Under Chapter 11 or Subchapter V, you can force the SBA to restructure your loan even though its own rules don’t permit you to do so.
Charge-off is not forgiveness
Charge-off is an accounting event, not a release. SOP 50 57 4, effective November 1, 2025, added a status called “SBA Uncollectible” — applied once SBA’s collection efforts are exhausted, expressly so the file is ready for Treasury. When you hear “charged off,” this is hardly the end of the case. If the loan is with recourse to you — through a guaranty — the SBA can and will go after you personally.
The door ahead
SBA must transfer to Treasury at 120 days delinquent (if relying on Treasury for offset) or 180 at the latest. 31 C.F.R. § 285.12(c)(2). Once transferred, it generally cannot be sent back. This is the last phase in which SBA is the party you’re dealing with.
So what can you do? If the settlement door is closed and the Treasury door is opening, the remaining move is the one that isn’t inside SBA’s system at all. A bankruptcy filing stops the referral by regulation and splits an undersecured SBA loan in two.
Now you know what to ask
Come with your phase, your loan number, your guaranty (or the fact that you don’t have one), and the last letter you received. That’s a first conversation worth having. Lakelaw is a bankruptcy boutique. David P. Leibowitz has practiced bankruptcy law for more than fifty-two years. The first conversation costs nothing and is confidential.
Schedule a free consultation or call 312-662-5750.
Attorney advertising material. General information about SBA loans, federal debt collection, and bankruptcy — not legal advice. Reading it creates no attorney-client relationship. Every case turns on its own documents and facts.
Nothing here is a promise, guarantee, or prediction about any result. Prior results do not guarantee a similar outcome. Bankruptcy relief is available only to those who qualify.
Federal regulations, SBA standard operating procedures, statutory debt limits, and collection practices change — sometimes on short notice, as the March 31, 2026 expiration of SBA’s servicing waiver demonstrates. Figures are current as of publication and should be verified before you rely on them.
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