Everything gets harder here. Not impossible — harder, and more expensive.
SBA is out of the picture. The Bureau of the Fiscal Service is your servicer now, it sets the terms, and it does not need to sue you first.
What Treasury can do without a court
- Garnish 15% of disposable pay. No lawsuit, no judgment, no judge — a letter to your employer. 31 U.S.C. § 3720D; 31 C.F.R. § 285.11. Where more than one garnishment is already running, the total is held to 25%, and nothing may be withheld from someone involuntarily separated from a job until they have been reemployed continuously for twelve months.
- Intercept federal and state tax refunds.
- Offset Social Security benefits — a separate rule under separate authority. Under 31 C.F.R. § 285.4, Treasury may take the lesser of 15% of the monthly benefit or the amount by which the benefit exceeds $750 per month. SSI is exempt entirely.
- Intercept federal vendor payments. If you sell to the government, that revenue is reachable.
- Refer the file to DOJ for actual litigation — SBA transmitted the borrowers behind all 562,000 of its spring referrals to DOJ, though a transmittal is not itself a suit.
What’s still yours
The Fiscal Service Debtor Dispute Form, a written request for an AWG hearing, a negotiated repayment plan, and a Treasury-side compromise.
The windows are short and exact. To stop a wage garnishment before it starts, your written hearing request must reach the Bureau of the Fiscal Service within 15 business days of the date on the garnishment notice. Miss it and a hearing is still available, but the garnishment order can go to your employer in the meantime. The clock started the day the notice was dated — not the day you opened it.
AWG hearingRequest for hearing, hardship claim, and the individual debtor’s rightsWhere the 15-business-day deadline lives.Treasury — AWG for individualsCross-ServicingDebtor Dispute Form, debtor financial statements, payment optionsTreasury’s own overview of what it can do and what you can request.Treasury — Cross-ServicingThe collection surcharge is superficially legal
When the debt crosses over, the cost of collecting it is added to what you owe. Treasury does not publish a fixed rate — it sets these fees annually and announces them to creditor agencies rather than publishing them. TFM Vol. 1, Pt. 3, Ch. 5000, § 5040.10a. The amount assessed against you should appear on your Treasury demand letter, and it is the first document we ask to see — because it is then collected out of the same 15% garnishment for correspondingly longer.
Under 31 C.F.R. § 285.12(j), Treasury may charge fees “sufficient to cover the full cost” of collection, may calculate them “based on a percentage of collections,” and — critically — those fees “may be determined based on overall program costs and need not be based on costs related to the collection of a specific debt.” The fee reaches you only through that paragraph’s last sentence: it may be added to the debt “if authorized under 31 U.S.C. 3717(e).”
And § 3717(e) authorizes a charge “to cover the cost of processing and handling a delinquent claim.” That is cost-recovery language. So the regulation permits a fee expressly untethered from the cost of collecting your debt, then passes it to you under a statute authorizing recovery of the cost of collecting your debt.
The surcharge is authorized, routinely applied, and will not be waived because you point this out in a letter.
The only thing that still works here
The automatic stay. A bankruptcy filing halts the garnishment, the offsets, and the intercepts on your SBA debt on the day of filing — not after a hearing, not after negotiation. That assumes this is your first recent filing: under § 362(c)(3) and (c)(4), a debtor whose earlier case was dismissed within the past year gets only 30 days of stay unless the court extends it, and a debtor with two or more such dismissals gets no stay at all unless the court imposes one. One carve-out is worth knowing: § 362(b)(26) still permits the government to apply a tax refund against prepetition tax debt, so if you owe the IRS as well as the SBA, the refund question gets answered separately. It is the only tool on this page that doesn’t require Treasury’s cooperation.
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 without any notice to borrowers, as the March 31, 2026 expiration of Treasury’s exemption letting SBA keep servicing delinquent COVID-19 EIDLs demonstrates. Figures are current as of publication and should be verified before you rely on them.
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