The Economic Injury Disaster Loan (EIDL) program provided vital financial assistance to businesses during the COVID-19 pandemic, and other declared disasters. Issued by the Small Business Administration (SBA), these loans offered a long-term, low-interest solution that helped many businesses cover operating expenses and keep their doors open during unprecedented times. Unfortunately, the very thing that kept many businesses afloat during troubled times is now a burden many businesses cannot bear.While the effects of COVID-19 and other more recently declared disasters may mostly be behind us, many small businesses are still feeling aftershocks from debts taken on during those times. To make matters worse, as of March 19, 2025, the SBA announced the COVID-19 EIDL loans are no longer available for the Hardship Accommodation Plan (HAP) and may not be forgivable, unlike other pandemic relief programs.
So, where do business owners turn for relief from their EIDL loan? Let’s explore the facts about EIDL loans, whether forgiveness is an option, and what alternatives might be available for businesses struggling to repay.
Penalties for EIDL Defaults Are Severe
Failing to remain current on an EIDL or pursue some other remedy can lead to very serious consequences for the business as well as the additional guarantors that were compelled to sign the loan documents. The SBA can and will pursue both the business and those individual guarantors to collect on the debt. One of the most severe and often used approaches to collect by the SBA will include a referral of the debt to the Treasury Offset Program (TOP). Borrowers normally receive multiple warnings that their debt is “being referred to the Treasury,” but don’t realize that the moment that happens, the TOP automatically imposes a 30% penalty to the balance. If you owed $500,000, that means your new payoff just increased $150,000. The Treasury will continue to withhold funds due back from the government such as tax refunds, garnishment of 15% of a taxpayer's social security payment and other remedies until those amounts are paid. For some, that could be a lifetime’s worth of payments.
So, Other Than Full Payment, Can A Business Get Rid Of its EIDL Loan?
Yes, but first and foremost, payment is the ultimate defense when it comes to getting rid of an EIDL loan.
Unlike the COVID-19 Paycheck Protection Program (PPP) loans, which offered partial or full forgiveness if used for specific purposes like payroll, EIDL loans are structured as traditional loans. Recipients are expected to repay the full loan amount with interest, regardless of how the funds were utilized. So, unfortunately for borrowers, EIDL loans ARE NOT forgivable, but they ARE dischargeable. Even if you cannot pay off the EIDL loan balance in full, we’ll show you how to get that discharge, which eliminates that debt.
Discharging an EIDL That a Business Cannot Afford
For businesses struggling to repay an EIDL loan, it’s important to understand there’s hope. Ignoring repayment obligations can lead to serious consequences, including default, damage to credit, legal action, or the dreaded and costly referral to the Treasury discussed earlier. Discharge of the debt is different from cancellation or settlement of the debt because it requires a legal action that ends with a Court Order that judicially erases from the debts of the business. Once discharged, that debt can never reappear against that business. This powerful discharge tool hinges on the ability of the business to take advantage of the protections afforded in a business bankruptcy reorganization or a personal bankruptcy if needed.
Filing for Chapter 11 Business Bankruptcy Reorganization
While the idea of “bankruptcy” often carries a negative connotation for business owners, because most believe it means having to sell or lose everything, that’s not what a Chapter 11 Reorganization contemplates. A Chapter 11 reorganization offers an efficient and effective way to address outstanding debts while safeguarding business and personal assets.
Some of the business and personal bankruptcy options we’ve used to help small business owners facing EIDL repayment difficulties are:
Chapter 11 Subchapter V Bankruptcy
Also known as the “reorganization” bankruptcy, Subchapter V was added under Chapter 11 of the U.S. Bankruptcy code to make bankruptcy more streamlined, affordable, and accessible to small businesses. By filing Subchapter V bankruptcy, small business owners can reorganize debt and develop a plan to pay off remaining debt without halting business operations, or losing ownership in the businesses they’ve built.
Subchapter V bankruptcy also offers a quicker process, no required disclosure statement, and a number of other benefits, which you can read about in more detail here. Time and time again, it has been the most favorable solution for small businesses to find EIDL debt relief. Best of all, upon completion of the Bankruptcy, a Court will issue that coveted discharge in a Court order, which will erase and discharge any debts not paid in the plan, which could include the EIDL
or 11 Personal Bankruptcy
If a business owner signed a personal guarantee for an EIDL, and the business is not able to pursue a discharge of the debt via a Business Chapter 11 proceeding, then a personal bankruptcy may be necessary. Personal bankruptcy is not an easy decision and shouldn’t be chosen without the direct support of a trusted attorney. If this path is chosen, personal guarantees for business loans and discharge of debts, including the business EIDL loans are likely.
Get Business Debt Relief Now
If your business is overwhelmed with EIDL debt, and you’re unsure where to turn, The Lane Law Firm is here to help. While EIDL loan forgiveness is not an option, EIDL discharge is. There are solutions to address these obligations and protect the future of your business. We’ll get to know your business’s circumstances, figure out the best way forward, and fight on your behalf through it all.
Bankruptcy can provide an opportunity to reset and move forward. With over 15 years of experience handling complex business debt cases, The Lane Law Firm routinely assists business owners in utilizing bankruptcy to regain control of their finances and pursue a more stable future.
Get the process started by scheduling a free, no-obligation, 100% confidential consultation.
