Understanding Forgiveness and Bankruptcy for EIDL

From the Desk of Attorney Omar Zambrano: Helping 10,000 Families Become Debt-Free in 2025

📍 Proudly Serving Los Angeles, San Bernardino & Riverside Counties

There is confusion in every corner of Southern California right now when it comes to one question:

Can Economic Injury Disaster Loans (EIDL) be forgiven — or discharged in bankruptcy?

Business owners who are barely surviving post-pandemic are waking up to monthly payments on 30-year federal loans. Many never read the loan paperwork. Many assumed some kind of forgiveness was coming. And now, with mounting pressure, the SBA is ramping up enforcement.

Let’s break this down — clearly, legally, and without any false hope.

What You Actually Signed: The LAA

If you took out an EIDL loan, you signed a Loan Authorization and Agreement (LAA). That document wasn’t just a summary of your loan terms. It was a legally binding contract with the federal government.

The LAA includes:

• The loan amount and 3.75% interest

• The 30-year term and no prepayment penalty

• Your personal or business name

• The borrower’s address

• Any collateral pledge (for loans over $25,000)

• Civil and criminal penalties for violations

But more importantly, it contains strict restrictions:

• You must notify the SBA of address changes

• You can’t sell business assets without permission

• You can’t add partners or investors without prior approval

• You can’t take out new loans without notifying the SBA

And here’s the reality: most borrowers never read the fine print. But the SBA is reading it now.

What the SBA Is Actually Doing Right Now

Forget about forgiveness. The SBA is not forgiving EIDL loans. Instead, they are doing four things:

1. Reviewing past loan files for compliance issues

2. Flagging borrowers for minor paperwork mistakes

3. Auditing eligibility and collateral information

4. Enforcing full repayment with no compromise options

On April 10, 2025, the SBA implemented a new round of enforcement tools:

• Citizenship and age verification

• IP flagging (especially for foreign logins)

• Identity mismatch alerts

• Retrospective loan eligibility reviews

Any borrower who has:

• Defaulted

• Missed payments

• Filed incomplete documentation

• Changed business structure without notification

…is at risk of being flagged or penalized.

Can EIDL Be Forgiven Like Student Loans?

No. And this distinction matters.

There’s a reason student loans — and even Wall Street — were given some measure of relief. But COVID EIDL loans are structured federal contracts with no political appetite for cancellation.

Despite borrower hope, here’s what we’ve seen:

• No proposed legislation in Congress offering EIDL forgiveness

• No forgiveness clause in the LAA

• No Biden-era programs offering EIDL discharge

• No signs of temporary or long-term cancellation

Even Senator Joni Ernst’s 2025 proposed bill suggested harsher enforcement, not leniency.

SBA internal memos now use the word “fraud” as the default lens through which they view EIDL borrowers — regardless of intent.

So What Is the Legal Way Out?

That leads us to the next question — if forgiveness isn’t an option, what about bankruptcy?

Here’s what you need to know:

✅ EIDL Loans Can Be Discharged in Bankruptcy in Most Cases. Yes — but with important legal caveats:

• Loans under $25,000: No collateral, no personal guarantee

• Loans under $200,000: Often do not require personal guarantees

• Loans over $200,000: Require both business and personal guarantees

So:

• If you’re a sole proprietor with a $15,000 loan and your business closed, a personal bankruptcy (Chapter 7 or 13) may discharge that debt entirely.

• If your business was a corporation or LLC and you’re under $200K, a business bankruptcy may be sufficient.

• If your loan is above $200K, and you signed a personal guarantee, you may need to file both business and personal bankruptcy.

Southern California Clients: Real Scenarios

🏚️ Long Beach Contractor

$180,000 EIDL loan under his LLC. Business collapsed post-2021. No personal guarantee. Filed Chapter 7 under the LLC, debt discharged, personal assets untouched.

💇♀️ Van Nuys Beauty Salon

$25,000 EIDL loan under sole proprietor license. Lost all income. Filed personal Chapter 13. Debt was fully restructured with no default penalties.

🍔 Riverside Food Truck Operator

$210,000 EIDL loan with a personal guarantee. Attorney recommended personal bankruptcy filing to cover SBA liability. Discharged both SBA and private loan debt.

What Happens After Bankruptcy?

Even if the debt is legally discharged, the SBA may flag you in the following systems:

• Do Not Pay List (DNP): A federal blacklist preventing access to future loans or grants.

• CAIVRS (Credit Alert System): Used to block federal loan eligibility, including for FHA mortgages.

Defaulting on SBA loans doesn’t lead to criminal charges — but it does limit your access to future federal programs.

The SBA does not seize assets aggressively — but they keep records. You may not hear from them for years. But when you apply for something new, it shows up.

What You Should Do Now

If you’re holding an EIDL loan — and struggling — you need a legal plan before things get worse.

✅ Review Your LAA

Email cesc@sba.gov with your loan number and request a copy of your agreement. Review the terms and obligations — or bring them to a lawyer.

✅ Stop Hoping for Forgiveness

It’s not coming. Focus on strategies you can control — negotiation, restructuring, or bankruptcy.

✅ If You Closed Your Business, Stop Paying Blindly

You may not even be liable depending on how the loan was structured. Get legal advice before continuing auto-pay on a closed LLC or dissolved business.

✅ Don’t Wait for SBA Collection Letters

Once you default, the loan can go to the U.S. Treasury. From there, you risk:

• Tax refund seizure

• Wage garnishment

• Social Security offset

We’ve stopped all of these — but only when clients came early.

What Our Office Does to Help

Here’s how we help EIDL borrowers across Southern California:

🛡️

SBA Loan Defense

• Review and challenge eligibility flags

• Communicate with SBA, Treasury, or OIG

• Help you avoid collections and penalties

🛡️ Bankruptcy Protection (Chapter 7 & 13)

• Eliminate SBA debt legally

• Protect your personal or business assets

• Stop collections, lawsuits, and Treasury garnishment

🛡️ Business Closure Guidance

• Navigate proper LLC or S-corp dissolution

• Ensure personal protection through proper filings

• Prevent future liability from business shutdowns

🛡️ Loan Negotiation and Payoff Strategy

• Explore SBA compromise settlements

• Assess if hardship accommodations apply

• Build a repayment plan to avoid default status

📞 Free Legal Consultation

No pressure. No scare tactics. Just clear guidance tailored to your loan, your business type, and your situation.

📍 Contact The Law Offices of Omar Zambrano

📞 Call or Text Now: (626) 338-5505 

🌐 Visit: www.omarzambrano.com 

📱 WhatsApp: +1-626-550-7071 

📍 Office: 12738 Ramona Blvd, Baldwin Park, CA 91706

Closing Thoughts

If you’re holding on to the hope that the government will forgive your EIDL loan, I want to be honest with you — it’s not going to happen. Not this year. Not in this Congress. Not in this climate.

But that doesn’t mean you’re stuck.

You have rights. You have legal options. And you are not alone.

Thousands of business owners across Los Angeles, Riverside, and San Bernardino counties are dealing with the same stress, the same confusion, and the same quiet fear that the government will knock on their door.

Don’t wait for that to happen.

If your business is gone, if your income is gone, or if you simply can’t keep up with payments — reach out. We’ll find the safest legal path forward.

Helping 10,000 Families Become Debt-Free in 2025

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