EIDL Loan in Collections? Here's How Bankruptcy Can Protect Your Business
June 17, 2026
If you took out an Economic Injury Disaster Loan (EIDL) during the COVID-19 pandemic and have fallen behind on payments, you may now be facing a frightening new reality: the federal government has begun transferring delinquent EIDL loans to the U.S. Department of the Treasury for collection. This is not a scare tactic — it is happening right now, and the consequences can be severe.
The good news is that you have options — including bankruptcy protection — that can stop collections in their tracks and give you a real path forward.
Chapter 11 Subchapter V allows small businesses to reorganize and create a structured repayment plan while protecting assets — and in many cases, reducing the secured debt down to the actual value of company assets.
Although we cannot guarantee the outcome of your case — as every result depends on a company's unique assets and liabilities — this example illustrates what strategic restructuring can achieve.
When Je Ainsworth worked with a large construction company facing an overwhelming SBA EIDL loan of $2,039,069, he successfully reduced the secured claim down to just $100,826, converting $1,938,243 into unsecured debt.
The company's monthly payments on the secured balance dropped to a manageable level, and the SBA's unsecured deficiency claim — which exceeded $1.9 million — and the $1,938,243 unsecured deficiency claim was resolved for a total of just $1,737 paid out over the life of the Chapter 11 plan. For a business that likely would have otherwise closed, that outcome was the di erence between survival and closure.
What is an EIDL Loan — and why is it being collected now?
EIDL loans were issued by the U.S. Small Business Administration (SBA) to help small businesses survive the economic devastation of COVID-19. Millions of business owners received loans ranging from a few thousand dollars to $500,000 or more, with low interest rates and deferred payments. At the time, these loans felt like a lifeline.
But now the repayment period has arrived, and many businesses that never fully recovered are struggling to keep up. When an EIDL borrower defaults, the SBA can refer — and now is referring —those loans to the Treasury Department's Bureau of the Fiscal Service. Once that happens, the collection tools at the government's disposal become far more aggressive.
What Treasury collections means for you
Once your EIDL loan is referred to the Treasury, the government gains access to powerful collection tools that a regular lender simply does not have. These include:
Levying your bank accounts
Freezing or seizing funds from your bank accounts
Offsetting or seizing your federal and state tax refunds
Garnishing wages
Unlike a bank or private creditor, the federal government doesn't need to sue you first. These actions can happen quickly, and often with little warning.
Can bankruptcy stop Treasury collections on an EIDL loan?
Yes — and this is critical. The moment you file for bankruptcy, an automatic stay goes into e ect. This is a federal court order that immediately halts virtually all collection activity, including Treasury Department collection e orts on your EIDL loan. That means:
Bank levies are stayed
Collection calls and demands must stop
Tax refund o sets must stop
Wage garnishments must cease
Important things to know about EIDL loans and bankruptcy
Before you proceed, there are a few key facts every EIDL borrower should understand: EIDL loans are government debts — not private ones, although private loans can be treated similarly in bankruptcy depending on the collateral that was pledged. This means they are subject to federal collection rules, which are broader and faster than typical creditor collections. EIDL loans over $25,000 may be secured by collateral. If your EIDL loan exceeded $25,000, it is likely secured by a lien on your business assets. EIDL loans over $200,000 may also include a personal guarantee. This a ects how the debt is treated in bankruptcy.
Timing matters
The longer you wait after receiving a Treasury collections notice, the fewer options you may have. Acting quickly preserves your choices. You are not alone. Thousands of small business owners across the country are in the same situation. There is no shame in using the legal protections that exist precisely for moments like this.
What you should do right now
If your EIDL loan has been referred to Treasury — or if you have received a delinquency notice and fear it may be — do not ignore it and do not panic. Take these steps: 1. Do not make rushed decisions. Paying one creditor over another, transferring assets, or liquidating your business without legal counsel can create serious problems in a bankruptcy case. 2. Gather your loan documents. Know your loan amount, whether it is secured, and whether you signed a personal guarantee. 3. Contact our o Je ice immediately. The sooner you speak with a qualified attorney like Ainsworth, the more options you have available.
Ready to take the next step?
Branson Ainsworth has helped small business owners navigate bankruptcy and government debt collections. If you have received Treasury collections notice on your EIDL loan, we can help you understand your options and protect what you've built. Je Ainsworth is one of the most active Subchapter V filers in the United States, with a track record of helping small businesses restructure overwhelming debt and stay open.
Contact us for a consultation at (407) 894-6834 and fill out our online contact information at Contact | Branson Ainsworth PLLC so we can start helping you sleep at night.
This article is for informational purposes only and does not constitute legal advice