r/EIDL

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.

===

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.

TLDR:

• Sole prop $42,600 EIDL
• 6 months behind on payments as of Feb 2026 but still at SBA (not transferred to Treasury)
• account paid current by end of April with individual payments (no lump sum)
• May 2026 reinstated to Disbursed Current, emailed SBA to review & received 'no additional action is necessary' response - current status as of July 1st, 2026

Long story with details:

Sharing my own journey because this spring when I started researching Reddit for hope/next steps, I didn't necessarily find anyone with my specifics (that hadn't already been sent to Treasury).

Timeline:
$43,600 EIDL issued September 2021. Took all deferments and then applied for reduced payments under hardship plan which started March, 2024.

March 2024 - started $25/month payments

March 2025 - started 50% reduced payments for 6 months - paid through July, 2025

August 2025 - business stalled right as full payments started so I stopped making payments

December 8, 2025 - notice of default and acceleration demand (message in portal)

December 28, 2025 - final notice of delinquency (message in portal)

January 17, 2026 - another final notice of delinquency message in portal (this is when I finally started paying attention & understood the stakes - hoped that if I could get my tax refund, I would be able to catch up payments fully)

February 5, 2026 - made first payment since July, 2025

March, 2026 - made 3 separate payments over the month. Submitted taxes electronically March 16th and received full refund March 25th

April, 2026 - made 5 separate payments over the month which caught up the account (5th payment made April 29th)

May, 2026 - 1st week of May account automatically updated to Disbursed Current. Breathed a sigh of relief until I started seeing posts in this Reddit thread from others who'd also paid their account to current (usually as a lump sum) and then STILL were transferred to Treasury.

At this point, I asked Google Gemini for advice - and it recommended emailing the below (in italics) with screenshots (showing the account as Disbursed Current with the most recent payments) to: CovidEIDLServicing@sba.gov & copied to cesc@sba.gov

Subject: URGENT: Reinstated Account Status & Pending Payment Verification - Loan #

I am a single parent sole proprietor writing to ensure my account is manually locked in regular SBA servicing and protected from any automated Treasury referral glitches.

Please note the following verified updates to my file:

1. Account Reinstatement: Between February 6th and April 29th, I successfully cleared 100% of my previous past-due balance through a series of individual portal payments. My main dashboard reflects this correction and officially reads 'Disbursed: Current'.
2. May 2026 Payment: My current monthly payment was submitted 9 days late and is actively in 'Pending' status while clearing Pay.gov. The official transaction tracking code is Confirmation ID:

Because I have fully caught up my account and the current payment is actively processing, please ensure that any automated backend transfer payloads to Treasury Cross-Servicing are completely halted. 

Please reply with written confirmation that a manual servicing hold is active on my file.

Emailed May 31st - received automated response with case number ID (which Gemini assured me was a good thing)

June 2nd - received this reply:

Dear Borrower, 

Please be advised that once the full past due amount has been posted, your account status will be updated within 7-10 days. No additional action is necessary at this time.

You may access the SBA Loan Portal to make payments and review updates to your account status. 

If your account status has not been updated to current or if the next due date has not advanced by the next billing cycle, please contact us via email for a review of your loan status.

For further assistance, please email CESC@sba.gov with your servicing request and loan number in the subject line.

Sincerely,

Covid EIDL Servicing Center

June, 2026 - made June 2026 payment on schedule

July, 2026 - still at Disbursed Current (and current on payments)

I don't know if making individual payments and emailing the SBA made the difference - or it will long term - but it was the path I had available at the time.

I did research bankruptcy but it's just not a good option for my particular situation:

• Chapter 7 - I have too much equity in my house for the TN homestead exemption & it seemed likely I would be forced to sell to settle the EIDL (other debt is minimal - $5k on credit cards). If it were just me (54F), I'd sell the house, payoff everything and move to WY to help my aging Boomer parents - but I have a 14 year old about to start high school and a 19 year old college sophomore whose financial aid would be thrown by selling the house this year (I can safely sell in 2027 or then have to wait til 2032 as to not affect financial aid for my younger child - unless he doesn't go to college which is somewhat likely based on his personality but I digress).
• Chapter 13 - not viable option as my income fluctuates and I would be forced into a 5 year plan where the numbers just didn't really work

And my goal wasn't to not pay the EIDL loan - I am grateful for it and committed to paying the $225/month going forward. All spring I was kicking myself for letting it get so far behind. I just wanted a chance to catch up and stop SBA from transferring to Treasury if at all possible. Since I didn't have the funds to make a lump sum payment initially, my strategy was to start making up individual payments as fast as possible and hope.

Anyway, that's been the journey - maybe it will help someone else from avoiding the nightmare of Treasury + collections + demands for even more $. If anything changes with my account status, I will update this thread.

had a $42k EIDL loan that was sent to Treasury and then to collections. Now they are asking for around $68k.
Business has been extremely slow for the past 4–5 years, and honestly, I didn’t even know if I was going to stay in business. This summer, things finally started picking up a little for the first time in years. I really don’t want to have to close down and destroy my business over this.
Has anyone had any success getting the loan sent back to the SBA or working something out with Treasury/collections?

This situation has caused me a great deal of anxiety over the last week or so. I have been trying to figure out how to address this debt, but due to everything that happened during COVID, our family faced significant hardships and health issues. To keep our business afloat, support our family, and cover mounting hospital expenses, we ended up taking out nearly $250,000 in loans.
At the time, these loans helped us immensely and allowed us to survive an incredibly difficult period. However, we did not fully appreciate the long-term impact of the interest and the sheer magnitude of the debt. Now, five years later, the debt has been sent to collections.( I was making payments but that was barely scraping the interest. 750 dollars sometimes 1-2k a month depending on business we had that month)

I have several questions and would greatly appreciate any guidance. Some of these may sound basic, but please bear with me I am trying to understand every detail of this situation.
1. Will this affect my credit score?
2. Will this impact my mortgage, home, or vehicle?
3. Given my declining health, is there any possibility that this could be considered when negotiating or reducing the debt?
4. What happens if I never respond to this company, and how can I determine whether they are legitimate?
5. Is there any possibility of legal action against the SBA for not adequately considering the level of desperation many individuals faced while simply trying to survive during the pandemic?

For some context, I am 28 years old with four children, two of whom are in elementary school. I own a small business, and my husband is my business partner. He has been taking on side jobs whenever possible to help us make ends meet. In addition to this debt, we are also carrying approximately $15,000 in credit card debt while paying our mortgage and supporting our family vehicle expenses.
Any advice or insight would be greatly appreciated. Thank you.

Defaulted 80K EIDL (Sole Proprietor)

Last SBA payment 8/1/25

State Tax Refund Withheld by Treasury Offset (TOP) 3/26

No Impact yet to Personal Credit Reports.

Are others seeing Credit Scores crashing?

We received an SBA 7 a loan through Huntington Bank. We filled out the forms with a loan officer there and what we wanted to use it for she said they would never approve and she told us how to change the application in order to pass it through underwriting. When the economy tanked, so did our business and we have defaulted on the loan. They said they were sending it back to the treasury. We haven’t heard anything in many months, but I assume it’s coming.

I’m not even totally sure what I’m asking other than what to expect and is it common for loan officers to tell you to do something like that?

I got a 25k EIDL loan after covid and have been making payments on it up to a year ago. I now found out my loan was sent to the treasury. Loan was not personally guaranteed and I am currently finally able to fully pay off that loan and close my business. My question is after I pay off my EIDL do you think it’s at all possible to get an SBA 7a loan for the purpose of acquiring a new business? Or am I most likely banned from ever acquiring any SBA or government loans forever for having been delinquent in the past? Has anyone been able to get any more SBA loans (or any gov. Loans) after being delinquent and satisfying the loan?

Well, we started winding down our business this past December. Paid on the loan while we could but communicated with SBA in December that we were winding down, and reported that the business is closing and we would be liquidating assets. The Person at the time gave us written permission via email to do so. Fast forward to two weeks ago, I notified SBA we had taken the assets to auction to be sold. I get an email yesterday saying I need to fill out a form and request their permission to liquidate assets. Thought I already had permission. This has got to be the worst servicing I’ve ever seen. It seems like they don’t put notes in their system, save emails, etc… anyone else dealing with this process? We haven’t lawyered up yet, but I probably should start looking into it. As far as I know, we don’t have a PG and I’m on the fence about bankruptcy for the LLC.

He took out the loan in 2021. He died in 2023. Had no idea until we got a collection letter today. Is there a way to find out where the money was deposited? If it was into one of the company's accounts we would have seen it.

Hello,

I am an independent contractor, and I have an EIDL loan. My business is struggling, and I want to file bankruptcy.

I want to know what lawyer should i look for. Should I get a commercial or consumer lawyer?

Do I have to find a lawyer only in my area or anywhere in my state?

During the bankruptcy process, am I required to appear in court?

I will appreciate your help