This applies at every phase
Your guaranty, and your own assets
The business can die. The guaranty doesn’t.
Treasury doesn’t garnish a dissolved LLC’s wages. It garnishes yours. This is the section that decides whether a business-only solution is enough.
Do you actually have one?
More borrowers than you’d think do not — and don’t know it.
The CARES Act provides that the Administrator shall waive “any rules related to the personal guarantee on advances and loans of not more than $200,000.” CARES Act § 1110(c)(1); 15 U.S.C. § 9009(c)(1). Not may — shall.
So if an entity borrowed $200,000 or less on a COVID EIDL, that debt belongs to the entity. If the entity has nothing left, there is frequently nothing to collect. Letters demanding that you personally pay are letters to bring to a lawyer, not to answer with a checkbook.
But this protects entities — not sole proprietors. The waiver eliminates the guarantee. It does not create a corporation where there wasn’t one. If you borrowed as a sole proprietor or independent contractor — and CARES § 1110(b) made both expressly eligible, so a great many did — you are the borrower. You signed the note itself. Nobody needs a guaranty to reach you, because there’s no “you” separate from the business. Same for general partners.
The $200,000 line is a genuine shield for an LLC or corporation and a mirage for a sole proprietorship. SBA’s collection letters look identical either way.
What the government can reach
At Phase 3: your wages (15% of disposable pay, no court order), your tax refunds, your Social Security, and any federal payments owed to you.
Qualified retirement accounts are generally protected — and that protection is exactly why you should not cash one out to pay this debt before talking to a lawyer. Liquidating a protected asset to satisfy an unprotected one cannot be undone. It is the most common irreversible mistake we see.
A business case may protect you — frequently, not always
A business-only bankruptcy does not discharge your guaranty; § 524(e) says a debtor’s discharge doesn’t touch anyone else’s liability. But a plan can seek an injunction protecting the guarantor for the life of the plan, conditioned on performance. That’s a different animal from a release, and it works often enough to be the first thing to explore. The details are on the bankruptcy page.
The one that isn’t about money
Misrepresentation on the original application is a separate problem from inability to pay, and it doesn’t go away in bankruptcy — a debt obtained by fraud or a materially false written financial statement can be excepted from discharge under § 523(a)(2). Given how the EIDL program was underwritten, this deserves an early, honest conversation with a lawyer, under privilege. Not with a servicer, and not on a form signed under § 1001.
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.
© 2026 Law Offices of David P. Leibowitz, LLC. We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.