If you stop paying your COVID EIDL, the SBA reports the loan in default and refers it to the U.S. Treasury, which can garnish wages, take tax refunds, and add a fee of close to 30 percent, all without suing you first. Whether any of that reaches you personally depends on your loan size and how your business was set up. And no, there’s no EIDL forgiveness program. Here’s what actually happens, and how a bankruptcy lawyer can end it.
Is there EIDL forgiveness? The honest answer
No. COVID EIDL loans were never forgivable, and no forgiveness program is coming. The confusion is understandable: PPP loans, the other big pandemic program, were forgivable by design, and plenty of owners got both. But the SBA says it plainly on its own site: these loans “are not forgivable and must be repaid.” The only pandemic EIDL money that never had to be paid back was the EIDL Advance, the small grant of up to $10,000 (a bit more for the hardest-hit businesses) that some applicants received alongside the loan. The loan itself doesn’t expire, doesn’t convert to a grant, and won’t be forgiven by waiting. The closest thing to forgiveness that actually exists is a bankruptcy discharge, which can wipe out an EIDL the same way it wipes out most other business debt. More on that below.
What changed in 2026: Treasury has the file now
For years the SBA held on to defaulted COVID EIDLs under a special waiver instead of sending them to Treasury collections like other federal debt. That waiver expired on March 31, 2026. In April 2026 the SBA announced it had sent 562,000 pandemic-era loans worth $22.2 billion, a mix of COVID EIDLs and PPP loans that had been flagged for suspected fraud, to the Treasury Department for collection, and referred the borrowers to the Department of Justice. The SBA called it the largest referral package on record, and ordinary defaulted EIDLs are moving to Treasury too, not just the flagged ones: over 1.3 million COVID EIDLs are in default, more than $47 billion in all.
The transfer matters because it’s basically one-way. Once a loan lands in Treasury’s cross-servicing program, the SBA says it can no longer assist you. Treasury sets the terms from there, adds a collection fee that’s generally close to 30 percent of the balance, and uses collection tools that don’t require a courtroom.
What Treasury can and can’t collect
Treasury’s Bureau of the Fiscal Service can garnish up to 15 percent of a debtor’s disposable pay through administrative wage garnishment, intercept federal and state tax refunds through the Treasury Offset Program, and offset a portion of Social Security benefits. None of that requires a court order or a judgment. It’s an administrative process, which is exactly why it catches people off guard.
But those tools only reach whoever is actually liable, and for COVID EIDLs that turns on the loan amount. The SBA waived personal guarantees on loans of $200,000 and under, so for most smaller EIDLs the business entity owes the debt, not the owner. Here’s how the tiers break down:
| Loan size | Collateral | Personal guarantee | Practical exposure |
|---|---|---|---|
| Under $25,000 | None | No | The business owes it. If the entity closed with nothing left, Treasury may have little to collect against. |
| $25,000 to $200,000 | UCC-1 blanket lien on business assets | No | The lien follows business assets, but owners of an LLC or corporation aren’t personally on the hook. |
| Over $200,000 | UCC-1 lien, plus real estate on loans over $500,000 | Yes, every owner with 20% or more | Treasury can garnish the owner’s wages and take personal tax refunds. |
One exception swallows all of that for a lot of borrowers: sole proprietors. If you took the EIDL as a sole proprietorship, with no LLC or corporation, there’s no legal line between you and the business. You’re personally liable at any loan size, guarantee or no guarantee. And even where there’s no personal liability, Treasury can still pursue whatever the business itself has: its bank accounts, its assets, its tax refunds.
Your options: reduced payments, settle, or resolve it for good
The SBA’s Hardship Accommodation Plan, the program that let borrowers pay sharply reduced amounts, ended on March 19, 2025. What’s left is thinner: eligible borrowers whose loans are still with the SBA can request a one-time 50 percent payment reduction for six months, once every five years (borrowers who already used the old hardship plan generally don’t qualify). It buys breathing room, but interest keeps accruing and full payments resume when it ends. Once a loan has moved to Treasury, the SBA is out of the picture entirely, and you’re negotiating payment plans or an offer in compromise with Treasury instead. Settlements happen, but none of these options stops collection while you pursue them, and none erases the debt unless a deal actually closes. If the loan can’t realistically be paid, bankruptcy is usually the tool that ends it rather than postpones it. It’s the same analysis we walk through for any SBA loan default.
How bankruptcy treats an EIDL
An EIDL is generally dischargeable. The Bankruptcy Code doesn’t carve out SBA loans from discharge, so a COVID EIDL taken in good faith goes away like other unsecured debt. The main exception is fraud: a loan obtained with false numbers can be challenged under Section 523(a)(2), and pandemic-loan fraud enforcement is very real, so this is worth an honest conversation before filing, not after.
The other half is speed. The automatic stay takes effect the moment your case is filed and overrides Treasury’s administrative collection authority. Wage garnishment stops. Tax refund offsets stop. Which chapter fits depends on your situation: Subchapter V if the business is viable and wants to restructure the EIDL and keep operating, Chapter 7 if an owner personally guaranteed a loan for a business that’s done, or a Chapter 13 plan for an owner who doesn’t qualify for Chapter 7. The right answer depends on whether the business survives, who’s liable, and what else you owe, which is why the analysis starts with the whole business debt picture, not just the EIDL.
The lien question for loans over $25,000
If your EIDL was over $25,000, the SBA filed a UCC-1 lien against essentially everything the business owns: equipment, inventory, receivables. That lien is the one thing a discharge doesn’t erase. Bankruptcy wipes out the obligation to pay, but a valid lien generally survives and stays attached to the collateral. In practice this matters most for a business that’s still operating with real assets, where the lien has to be dealt with inside the plan. For a business that already wound down with nothing left, the lien attaches to nothing, and it’s usually a non-issue. We’ll tell you which situation you’re in before you file.
If your EIDL is in default or heading there, talk to a bankruptcy lawyer before Treasury’s fee lands on the balance. The consultation is free and confidential, our fees are affordable, with payment plans available, everything can be handled by phone or Zoom, and we represent business owners across Pennsylvania and New Jersey. Book your free consultation and we’ll give you a straight read on whether your EIDL calls for a settlement, a filing, or nothing at all.
Not through the SBA. COVID EIDL loans were never forgivable, and no forgiveness program exists in 2026. Only the small EIDL Advance grants never had to be repaid. The closest things to forgiveness are a bankruptcy discharge, which can wipe out an EIDL, or an offer in compromise that settles it for less.
The SBA reports the loan in default and refers it to Treasury, which can garnish up to 15 percent of your disposable pay, intercept tax refunds, offset Social Security, and add a collection fee of close to 30 percent, all without a court order. Whether that reaches you personally depends on your loan size and how your business was set up.
Yes, generally. The Bankruptcy Code doesn’t carve out SBA loans from discharge, so an EIDL taken in good faith is dischargeable like other unsecured debt. The fraud exceptions apply, so a loan obtained with false numbers can be challenged. The automatic stay also stops Treasury garnishment and tax refund offsets the day you file.
If the loan was $200,000 or under and it went to an LLC or corporation, generally no. Treasury can pursue the business’s own assets and refunds, but not yours personally. The big exception is sole proprietors: with no entity, you’re personally liable at any loan size. A lawyer can confirm which side of that line you’re on.