Capital One SBA Business Loan - Bizarre story - How to proceed?

[advgeek]

Hi,

I've consulted with my CPA and an bankruptcy attorney and have come up empty on this one, so maybe someone has an idea of what to do in my situation (bear with me this is lengthy):

Over 4 years ago I took out an SBA Express business loan from Capital One for $100,000 to finance my then growing business. The loan was personally guaranteed and a lien was given on my home. Since then the business has basically failed (due to the economy) and I haven't been able to make any payments for over a year on the remaining balance of $72,000.

Since then I have gone back to work outside the business, as has my wife (who also worked at the business). Defying all odds in the current economy we have both secured excellent jobs and are making great money with great companies.

However even though we are both doing well there's still no way we can (or would want to) make the payments on the business loan plus out two mortgages (the business loan alone is almost $2000/mo.).

At first Capital One placed the loan with an aggressive collections agency, which we tried to work with to compromise the debt. However they wouldn't work with us to find an amount we could pay to satisfy the debt. We then told them bluntly there wasn't any way we could pay (even though lawsuits were threatened by the agency).

We contacted the SBA directly, who didn't really seem to know anything or be able to help. Expecting to be sued at any moment I contacted a bankruptcy attorney to discuss my options. Since the house is now underwater (if the the Capital One lien is included) his advice was to just declare Chapter 13 if sued and walk away from the house.

Well, we waited and waited for the hammer to drop, but it's been 3 months since the last contact from the collections agency. We finally managed to contact a real person at Capital One corporate a few weeks ago and all they could tell us was that the loan had been written off and they didn't know who was servicing it at this point.

This leaves us in all kinds of limbo. Will Capital One just leave it written off and never come after us or will someday out of the blue I'll get sued? They still have a lien against my home, what will happen to this if it just sits out there? What to do?

[kork13]

At least to answer part of your last question ("out of the blue get sued"), I'm pretty sure that there is a statute of limitations (or something like that) on how long unpaid debts can still be reclaimed. It varies by state, so you can check with your state's legislature (most have searchable websites anymore). I've heard before of collections agencies just holding onto debts after being unsuccessful in collecting anything, then right before the SOL comes up they'll make one last shot at getting it back.

In any case, if you're having to deal with Collections Agencies, I highly recommend you be familiar with the Fair Debt Collection Practices Act... it provides for certain protections/rights that you should be aware of.

[boosami]

This leaves us in all kinds of limbo. Will Capital One just leave it written off and never come after us or will someday out of the blue I'll get sued? They still have a lien against my home, what will happen to this if it just sits out there? What to do?

Capital One has "written off" the debt because they have sent it over to a collection agency. It does not mean the debt is forgiven. It just means that Capital One has passed it to a collector. While there is a statute of limitations (as mentioned it varies by state), the agency can still sue you if it is outside that time window. The judge may choose to dismiss the case because of it, but that is not guaranteed.

Liens on property never expire--there is no statute of limitations that applies them. You will have to pay or settle it when you sell your home, and it may be possible for the creditor to force you into foreclosure if they do decide to sue.

[advgeek]

Capital One has "written off" the debt because they have sent it over to a collection agency. It does not mean the debt is forgiven. It just means that Capital One has passed it to a collector. While there is a statute of limitations (as mentioned it varies by state), the agency can still sue you if it is outside that time window. The judge may choose to dismiss the case because of it, but that is not guaranteed.

Liens on property never expire--there is no statute of limitations that applies them. You will have to pay or settle it when you sell your home, and it may be possible for the creditor to force you into foreclosure if they do decide to sue.

Right, I understand about the statute of limitations and the lien. However there's very little reason for Capital One to force me into foreclosure considering the house is underwater if you include their lien, they'll get little to nothing out of that. My question is given all of these things how should I proceed, Capital One can't even tell me who the loan is placed with? Should I just declare Chapter 13 and walk away from the house now, or should I just wait considering no one's taking any action.

[boosami]

Should I just declare Chapter 13 and walk away from the house now, or should I just wait considering no one's taking any action.

I'd continue to wait it out. In the future, the collection agency may be more willing to settle or agree on an acceptable payment plan. Bankrupcy should be your last option, only if completely necessary.

[arthurb999]

If the proceeds of the sale of the house don't cover the loans, they can sue you for the difference... and have every right to... they let you borrow the money... you owe it to them.

[PetMom]

Did the bankruptcy attorney discuss their lien options?

I am pretty sure but check with att. that a lien can sit on a property for years and whenever you try to sell it, they are notified and are first in line
AND/or they can force the lien and have the house sold to collect their money. Them writing off the debt surely does not write off the right to the lien.

In this economy what may be slowing them down is that there are so many homes being auctioned on the public courthouse for liens and foreclosures.

When someone has a lien on your property or home they have a right to it and a lot of power over it.

Have you done a title search to find out if the lien is showing as attached.
This can be a murky area as many people buy foreclosed homes and have liens that are not showing but are still enforceable on the purchased property.

Bankruptcy might be the option and you have been discussing that - creditors can strike years later (and the collection agency can sue you) - they can even attempt this when out of statute of limitations for a debt (does not happen too often but is possible).

[danothemano]

I have defaulted on the same Cap 1 sba loan with a similar balance. My business is still operating, though struggling. What was your outcome?

[cadillac]

no out

i had a very simalar loan, sba are like student loans as far as i know and you cannot declare bankrupcy to get out of them. i had paid 1700 a month for 5 or six years and then i called capitol one and said i could no longer pay that amount , they told me not to send 500$, they also would not refinance my loan for more money or for a longer term to lower my payments, if you dont pay capitol one they turn it over to the us tresury who then sends collections agents after you. i dont know what haoppens next. my balance with capitol one was less then 40,000 of the 97000 i barrowed minus the 8000 in origionation fees they never told me about untill i got my check and allready had part of it spent. total i have allready paid my loan in full but with the intrest they said i still owed 40k, then capitol submitted it to the tresuary for 63k$ way more then i really owed. hoping for a class action lawsuit to come along

[zearl2323]

You're screwed

The loan has already been paid to Capital one by the government. SBA are government backed loans. It is no different than a student loan or FHA loan. It is not forgiven in bankruptcy and will follow you for the rest of your life. Perhaps you can find a way out with a good attorney, but doubtful. The only way out is to build you credit which will be hard at this point and pay it off with loans that are not backed by the government and the file BK. When you get a SBA then they don't usually tell you this . You owe this money to the government now not Capital one and the collection agency is for the government not Capital One. Good luck.

[smallbusinessfailed]

SBA and Bankruptcy

I am sure you have already gotten a complete answer by now but I will share my experience. I was in a similar situation except I owed a lot more on my loan. The SBA loan is discharged in Chapter 7 bankruptcy. You would file Chapter 7 for the business and then file Chapter 7 personally. The reason you can discharge the loan is the loan originates from the bank and is backed by the SBA. In the list of creditors, you would list the bank that originated the loan, not the SBA. You would file Chapter 7 and put the house into bankruptcy so you will not be responsible to pay back the primary loan and secondary lein on the property. You will not be able to save your home.

Remember, Chapter 7 is for liqudating and Chapter 13 is reorganizing your debt and coming to a payment agreement with your creditors. Filing bankruptcy is not always the answer and it will mess up your credit for years (10 years for Chapter 7). After about two years, you can get a home loan at the current interest rate and after about 4- 6 months you can get an unsecured credit card (the interest rate is high but it is only to begin building your credit back up).