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 its collection costs to the balance, 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.
Updated September 2026.
What happens if you default on an EIDL loan?
Four things, in order. The SBA reports the loan in default. The account is referred to the U.S. Treasury for collection. Treasury adds its collection costs to what you owe. Then it collects using tools that need no court order: administrative wage garnishment of up to 15 percent of your disposable pay, interception of your federal tax refunds and some state payments, and an offset against part of your Social Security. Whether any of it reaches you personally depends on your loan size and how the business was set up, which is the next question below.
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: as of December 2024 the SBA had charged off 369,588 COVID EIDLs with original balances over $25,000, more than $47 billion in all, and was still chasing another 96,745.
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 its collection costs to what you owe (federal rules let it charge a fee covering the full cost of collection, added to the debt, with no published rate), 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 tax refunds and some state payments 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.
Am I personally liable for an EIDL under $200,000?
Usually not, if the loan went to an LLC or a corporation. Treasury’s collection 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 a mortgage on business real estate (if the business owned any) 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 ask to cut their payments in half for six months, and they can use that help once every five years. 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 (a settlement for less than the full balance) 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.
Is the COVID EIDL Hardship Accommodation Plan still available?
No. The SBA ended the Hardship Accommodation Plan, the program that let borrowers pay as little as 10 percent of their monthly payment for six months at a time, on March 19, 2025. What the SBA offers now is called payment assistance, and it’s narrower: if your loan is still serviced by the SBA and you meet the conditions, you can cut your payment in half for six months, once every five years, by requesting it through the SBA loan portal.
The SBA publishes five conditions, and they’re worth reading slowly:
- The loan is less than 90 days past due when you ask.
- The loan has not been charged off or marked uncollectible. (SBA’s newest page goes further and says the loan must be current, so expect that stricter reading.)
- The business is actively open and operating.
- Neither you nor any owner is in an active bankruptcy case.
- You are asking because of a temporary cash flow problem, not a long-term one.
Two of them disqualify a lot of the people who need the help most. If the business has already closed, payment assistance is off the table no matter how good the loan looks on paper, which is why the wind-down questions on our page about closing a business with debt usually have to be answered first. And because an active bankruptcy case is itself a disqualifier, the order you do things in matters. That’s a sequencing decision, not a paperwork detail.
It also helps to be clear about what payment assistance does and doesn’t do. It shrinks the payment, not the debt. The SBA doesn’t waive interest during the six months, so interest keeps building on the balance and the balloon payment (the lump sum left sitting at the end of the loan term) gets bigger. When the six months are up, full payments resume. If you’re already enrolled, you finish your current period and then owe the full amount again.
Miss the window and the next deadlines are federal ones. By law the SBA has to refer an account to the Treasury Offset Program (the federal system that intercepts tax refunds, Social Security, and other federal payments) no later than 120 days after it goes delinquent. Loans that meet the delinquency thresholds also move into Treasury cross-servicing, where Treasury replaces the SBA as the servicer, and the SBA is blunt about what follows: once a loan is referred, it can no longer assist you. There’s one narrow door back. A loan that’s been charged off but hasn’t yet gone to cross-servicing can be restored to current status by paying the full overdue balance through the SBA loan portal and then asking the COVID EIDL servicing team to reinstate it.
Payment assistance is the right tool when the problem really is six months long. When it isn’t, half a payment for six months mostly buys time while the balance grows, and the file drifts toward Treasury while you wait. That’s the conversation worth having before the loan leaves the SBA, because the options narrow considerably once it does. Book a free consultation and we’ll tell you straight whether payment assistance, a settlement, or a filing fits your EIDL. We represent business owners across Pennsylvania and New Jersey, by phone or Zoom, with no pressure and no obligation.
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. We also keep the current PA and NJ filing fees, income limits, and exemption amounts on one page: see our current bankruptcy numbers.
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 its collection costs to the balance, 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.