Quick Answer: Over 1.3 million SBA COVID EIDL loans are in default — totaling more than $47 billion. The SBA’s Hardship Accommodation Plan ended in March 2025, and Treasury can now garnish wages (15% of disposable income), intercept tax refunds, and offset Social Security — without a court order. Here’s what EIDL borrowers need to know right now.
If you’re weighing legal help, here’s how to find the right attorney for your EIDL — and how to avoid the “loan relief” scams targeting EIDL borrowers.
The bill is coming due for America’s pandemic emergency loans — and hundreds of thousands of small business owners can’t pay.
Between 2020 and 2022, the SBA issued approximately 3.9 million Economic Injury Disaster Loans (EIDLs) totaling around $400 billion to help small businesses survive COVID-19. These were real loans — not grants, not forgivable like PPP. They carry a 3.75% interest rate for businesses (2.75% for nonprofits) with 30-year terms.
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Now, according to an SBA Office of Inspector General report, the SBA has charged off 369,588 COVID EIDL loans totaling over $47 billion — with less than 1% recovered during liquidation. An additional 1.3 million loans are in default, liquidation, or charged-off status.
What Changed: The Hardship Plan Is Gone
For years, the SBA offered a Hardship Accommodation Plan that let struggling borrowers reduce payments by up to 50% for six months. Roughly 300,000 loans totaling $36 billion were enrolled.
That program ended on March 19, 2025.
According to bankruptcy attorneys tracking the issue, borrowers who were on the hardship plan are now expected to resume full payments. Those who can’t face referral to Treasury for collection.
What the Government Can Do Without a Court Order
This is where it gets serious. Unlike a private lender, the federal government doesn’t need to sue you first. Once your EIDL is referred to the Treasury Offset Program:
Treasury Collection Powers
- Wage garnishment: Up to 15% of your disposable income from every paycheck — no court order needed.
- Tax refund intercept: Your federal and state tax refunds can be seized.
- Social Security offset: A portion of your Social Security benefits can be withheld.
- Vendor payment offset: If you do business with the government, your payments can be intercepted.
- 30% collection surcharge: Treasury adds a 30% fee to your balance when your loan is referred for collection.
What That 30% Fee Means: If you owe $50,000 on your EIDL and it gets referred to Treasury, the balance jumps to $65,000 overnight. That’s $15,000 added to your debt just for being referred to collections. This is on top of the 3.75% annual interest that continues accruing.
Free Tool — Wage Garnishment Calculator: Worried about your paycheck being seized? The free Wage Garnishment Calculator shows exactly how much creditors can legally take in your state — and some states prohibit garnishment entirely. Calculate My Risk →
What Are Your Options?
If you have an EIDL you can’t repay, here’s what the current landscape looks like:
1. Contact the SBA Directly
If your loan hasn’t been referred to Treasury yet, contact the SBA to discuss payment options. The earlier you engage, the more flexibility you may have. Call the SBA disaster loan servicing center at 1-800-659-2955.
2. Offer in Compromise
The SBA’s Offer in Compromise program exists on paper — but according to SBA attorneys tracking the program, it has become “largely inaccessible.” To qualify, your business must be permanently closed with all assets liquidated. Even then, there have been no confirmed approvals for COVID EIDL borrowers in recent years.
3. Bankruptcy
This is the option most people don’t want to hear — and the one that might actually work. Subchapter V bankruptcy (for small businesses with debts under approximately $7.5 million) can restructure SBA debt into an affordable repayment plan. Key advantages:
- Stops wage garnishment and Treasury offsets immediately (automatic stay)
- Can restructure the EIDL into affordable payments over 3-5 years
- May allow you to keep operating your business
- Eliminates the 30% Treasury collection surcharge on the restructured amount
4. Negotiate Before Treasury Referral
Once your loan is referred to Treasury, your options narrow dramatically and costs jump 30%. If you’re behind on payments but haven’t been referred yet, this is the window to act.
Do NOT Ignore SBA Collection Letters. Every month you wait, interest accrues and you move closer to Treasury referral. The 30% collection fee alone can add tens of thousands to your balance. If you can’t pay, talk to an attorney — not paying and not responding is the worst possible strategy.
If You’re Struggling With Business or Personal Debt: Take the Find Your Path quiz to understand your options. And if any company offers to “settle” your SBA debt for a fee, run their contract through the Contract Decoder first — the SBA’s Offer in Compromise program is effectively non-functional, so anyone promising SBA settlement should be scrutinized carefully.
For a crisis-focused walkthrough of what happens step by step when you default — including the Treasury referral timeline, the 30% penalty, and your full range of options — see: I Can’t Repay My SBA EIDL Loan. What Happens to Me?
Before You Give Up — Read This: A reader comment after this post published made me realize there’s a piece of this story that deserves its own spotlight. If your loan was under $200,000, you may have no personal guarantee at all — which fundamentally changes what Treasury can do to you personally. And even if you do have a personal guarantee, options remain. Read my follow-up: SBA COVID EIDL in Default: Your Options Before Panic Sets In →
Key Takeaways
- Over 1.3 million SBA COVID EIDL loans are in default — $47 billion has been charged off with less than 1% recovered.
- The SBA’s Hardship Accommodation Plan ended March 2025 — 300,000 borrowers lost their reduced payment options.
- Treasury can garnish wages (15%), intercept tax refunds, offset Social Security, and add a 30% collection fee — without a court order.
- The SBA’s Offer in Compromise program exists on paper but is effectively non-functional for EIDL borrowers.
- Subchapter V bankruptcy may be the most effective option — it can restructure EIDL debt while keeping your business open.
- Act before Treasury referral — once referred, costs jump 30% and options shrink dramatically.
Free Tool — Cost of Inaction Calculator: Thinking about waiting to deal with your debt? The free Cost of Inaction Calculator shows exactly how much more you'll owe — in interest and lost retirement savings — for every month you delay. Calculate the Cost →
FAQ
Are EIDL loans forgivable?
No. Unlike PPP loans, EIDLs were never designed to be forgiven. They are 30-year loans at 3.75% interest (2.75% for nonprofits). There is no current forgiveness program for EIDL borrowers, and Congress has not passed legislation to create one.
What happens if I default on my EIDL loan?
After 120 days of delinquency, the SBA can refer your loan to the Treasury Department for collection. Treasury adds a 30% collection surcharge and can garnish wages (15% of disposable income), intercept tax refunds, offset Social Security benefits, and seize vendor payments — all without a court order.
Can the SBA garnish my Social Security for EIDL debt?
Yes. Through the Treasury Offset Program, the federal government can withhold a portion of your Social Security benefits to collect on defaulted EIDL loans. This does not require a court judgment.
Can I settle my EIDL loan for less than I owe?
The SBA’s Offer in Compromise program technically exists, but it has become largely inaccessible for COVID EIDL borrowers. To qualify, your business must be permanently closed with all assets liquidated — and even then, approvals are extremely rare. Consult an SBA attorney for case-specific guidance.
Can bankruptcy eliminate EIDL debt?
Bankruptcy can restructure EIDL debt. Subchapter V bankruptcy (for small businesses) can reorganize the debt into affordable payments over 3-5 years while you continue operating. Chapter 7 can discharge the debt entirely if you’re closing the business, though the SBA can still pursue personal guarantors. Consult a bankruptcy attorney for your specific situation.
Source: SBA Office of Inspector General Report 25-23, SBA.gov Manage Your EIDL, SBA Attorneys, Branson Ainsworth PLLC
For a crisis-focused walkthrough of what happens step by step when you default — including the Treasury referral timeline, the 30% penalty, and your full range of options — see: I Can’t Repay My SBA EIDL Loan. What Happens to Me?
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Mr. Rhode,
Can you give any information about a service called EIDL EXIT? I just spoke with them and, while their costs are high, the service they offer would seem to solve some of the problems associated with the Covid EIDL situation.
Any information you might offer would be appreciated. Thanks.
https://getoutofdebt.org/32764/how-to-check-out-a-business-or-company-to-avoid-getting-scammed-or-ripped-off
Steve,
An update on the aforementioned LLC/EIDL issue. It seems that, due to the EIDL coming into the coffers of the LLC and no revenue for the final 6 and first 2 months of 2020-2021, this infusion of capital created a problem in and of itself. As the LLC spent more money in compensation and expenses than it earned as revenue, and it is taxed as an S-Corp (common for LLC’s to reduce tax burden) it created the situation in which a loan or “due from member” was created that is now on the books as an asset of the LLC. This is an unexpected outcome that was not discussed with me by the CPA handling the LLC’s tax returns and books. Now it seems that there is a means for the SBA/Treasury to come after my personal property even though there is no personal guarantee when and if they seize the business assets. What advice do you offer in this situation? I have worked my whole life to pay off my house and debt and it is the only way my wife and I can survive on a SS fixed income. What can they come after in this situation? Pretty sure I need to consult an attorney knowledgeable in this area, any you could recommend?
JM Elswick
Well I think it’s time for you to do a national search for a EIDL tax attorney. You don’t need to limit your search to only your state.
Ugh.
Steve
Mr. Rhode,
Thank you for your article, it was very informative but did not answer the question I most need information on, what about managing members of an LLC and their liability should the LLC default on the Covid-19 EIDL?
As the managing member (owner) of a small consulting LLC in Louisiana, I was approved for and received an EIDL in 2020. The industry to which my LLC was dependent took a major hit from covid and has never fully recovered. The LLC struggled to make payments thru the various Hardship programs despite receiving ZERO revenue for 1/2 of 2023 and 100% of 2024 and 2025. The loan was kept current with the personal funds of the LLC representative (me) but that is no longer a feasible option. Payments to the SBA stopped 1/1/2026 and the EIDL is headed towards default. I have been told that the loan is under the limit ($150,000) for a personal liability requirement and there is no such stipulation on the loan documentation. I was required to sign as the authorized representative of the LLC on the note but I have received a letter from the SBA saying that there is no personal guarantee and that this has been removed from the loan documentation on record. The LLC is noted as the Borrower of Record and the UCC-1 lists only the assets of the business as collateral for the loan. My question is can TOPs come after my Social Security payments since there is no personal guarantee? Also, I was told by the SBA representative that discussed the EIDL with me that my signature was only a formality, “someone has to sign but this does not obligate you personally to anything” was the phrase I believe he used. Now I don’t trust what I was told as there has been a lot of comments about the speed and inaccurate information given to loan applicants.
Please give me your thoughts and feel free to post this question and response if you think in might help others. Thanks.
Thank you for sharing the details of your situation — this is exactly the kind of question others are wrestling with and you’re right that it deserves a direct answer.
Let me address the TOP / Social Security question first, because it’s the most urgent.
The personal guarantee issue. SBA policy during COVID EIDL specifically waived personal guarantees for loans under $200,000. Your loan at under $150,000 falls squarely in that category. The written letter from the SBA confirming no personal guarantee and that it has been removed from your loan documentation is significant — that is not a verbal assurance, that is documentation from the creditor itself. Keep that letter in a safe place and keep a copy somewhere separate.
On the SBA rep’s “just a formality” comment. You’re right to be skeptical of verbal statements. They mean nothing legally. What matters is what the loan documents say and what the SBA has confirmed in writing. In your case, the written confirmation works in your favor.
The LLC structure. Because the LLC is the borrower of record, the UCC-1 lists only business assets, and there is no personal guarantee, the debt belongs to the LLC — not to you individually. You signed as an authorized representative of the entity, which is standard. That is different from signing as a personal guarantor.
The TOP / Social Security question. This is where it gets important. The Treasury Offset Program works by matching federal debts to individual Social Security numbers. If the debt is the LLC’s — recorded under the LLC’s EIN, with no personal guarantee attaching it to your SSN — the mechanism for reaching your personal Social Security payments is not there in the way it would be for a personally guaranteed loan.
That said, I want to be careful here: I am not an attorney, and the SBA has not always been precise in how it refers debts to Treasury. There are reports of the SBA attempting collection actions in situations where the legal basis was questionable. The key protection you have is that written letter.
My strong recommendation is to consult with an attorney experienced in SBA issues before anything else — specifically someone who handles EIDL default cases, not just a general business attorney. You want someone who can review that SBA letter, your loan documents, and the UCC-1 together and give you a written opinion on your personal exposure. Many will do an initial consultation for a flat fee.
A bankruptcy attorney familiar with SBA matters is also worth a conversation — not because you necessarily need to file, but because they can help you understand how the LLC wind-down affects you personally in Louisiana, which has its own civil law nuances that differ from other states.
The LLC has options: it can negotiate, wind down, or in some cases file its own bankruptcy. What it should not do is continue draining your personal funds indefinitely to service a loan on an entity that is no longer generating revenue. At some point that math stops making sense.
You asked permission to share this — I’m glad to post it because your situation is not unique and the questions you’re asking are exactly the ones others need answered.