u/NathanJasper

How many people with an EIDL default eventually received a 1099-C from the government? How long was it after the default?

Is this information?

https://www.abi.org/feed-item/sba-eidl-loan-defaults-what-small-business-borrowers-need-to-know

Tax consequences for LLC members. If the loan was made to a pass-through entity such as a limited liability company and the loan balance is discharged or forgiven, the LLC members may recognize ordinary income under Section 108 of the Internal Revenue Code. Treasury will issue a Form 1099-C to the LLC members reflecting the cancellation of debt income.

For those who had it happen, did you avoid a huge taxable income by carrying forward business losses?

Since some of you will go through this process, I'll provide my experience.

I wrote to notify the SBA of my business closure. LLC, - EIDL <200k, No personal Guarantee

For reference, I'm posting the result of my business closure review. Prior to this, I received a series of questions: a-q. I did not give them an updated phone number and said as little as possible, stopping after question h.

g. Whether you intend to continue making payments on your loan

No

h. Itemized list of all business assets, including a description and valuation of each item

There are no assets; therefore, remaining questions are irrelevant.

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This is the letter I got after answering the question.

Since there is no personal guarantee - I don't think they can legally do the things in bold.

I expect they'll do the following:

• Loan principal may be taxed as income,
• Prevention from receiving additional government assistance, and
• Impact the ability to borrow in the future.

=======

Dear Borrower,

I have completed your business closure and asset liquidation review based on the information you have provided to date.  If you have remaining assets that need to be disposed of, please continue to communicate with SBA to ensure you remain in compliance with your Loan Authorization and Agreement throughout your liquidation process. 

 

The COVID Economic Injury Disaster Loan (“COVID EIDL”) is a federal obligation.  This is not a forgivable debt, and you are responsible for ensuring payments are made timely.  You will continue to receive communications regarding your upcoming or past due payments delivered electronically via your MySBA Portal and email.

 

Your next payment is due on 07/11/2025.  . . . . 

If a borrower does not make a payment when due, the loan is in default.  If there is a default, the SBA may:

• Require immediate payment of all amounts due,
• Collect all amounts owing from any Borrower or Guarantor (if any),
• File suit and obtain judgment,
• Take possession of any Collateral, or
• Sell, lease, or otherwise dispose of, any Collateral at public or private sale, with or without advertisement.

Should your loan fall into default due to non-payment, the Small Business Administration (“SBA”) may take certain steps consistent with the Debt Collection Improvement Act of 1996, to ensure maximum recoverable value of the loan such as:

• Negative reporting to credit bureaus,
• Tax refunds can be withheld,
• Loan principal may be taxed as income,
• Prevention from receiving additional government assistance, and
• Impact the ability to borrow in the future.

Recently, I closed my LLC, owing $199K on an EIDL loan with no personal guarantee. No assets left at time of closure, and I stated as such.

I notified the SBA through the portal.

This is an excerpt from their response.

I've emailed CESC since then and await their response.

The first paragraph is not accurate because I did not ask for assistance.

Since it's without a personal guarantee, I don't know what "the COVID Loan remains a federal obligation" means.

What happened to other people after this point?

>Thank you for contacting the U.S. Small Business Administration (SBA) Customer Service Center regarding assistance related to your SBA loan.

>To report the closure of your business, contact the Covid EIDL Loan Servicing Center directly via email at: CESC@sba.gov. Include your SBA Loan Number and provide information related to your present circumstances.

>Please be advised that, despite the closure of your business, the COVID Loan remains a federal obligation. This loan is not forgivable, and you are responsible for making timely payments. Additionally, only businesses that are open and operational are eligible for payment assistance.

>This loan is currently in SBA Uncollectible status, which means that the loan is in default for non-payment. This allows SBA to transfer the debt to the Department of Treasury for collections. To remove the SBA Uncollectible status, the loan must be brought current.