Can My Arizona Small Business File for Bankruptcy After Receiving PPP Loans and EIDL Loans?

More than one year ago, the COVID-19 pandemic surged across communities in the U.S., forcing many businesses to drastically restrict their services or shutter completely. Faced with the unknown, business owners were confronted with the fact that the companies they worked so hard to build may not make it through the mandated quarantine closures and the restrictions that followed.

To help soften the blow, the federal government provided aid in the form of two business loan options: The Paycheck Protection Program (PPP) Loan and the Economic Injury Disaster Loans (EIDL).

The Payroll Protection Program (PPP) was designed to provide small businesses with financial support to retain and pay their employees during the pandemic.

The Economic Injury Disaster Loans (EIDL) was designed to deliver economic relief for small businesses and nonprofit organizations that lost revenue during the closures and/or the following restrictions that harmed their ability to operate as usual.

Additionally, Economic Impact Payments, also called Stimulus Checks, were provided to individuals and families directly, and are now entering the third round of financial distribution after the American Rescue Plan Act of 2021 was signed by President Biden on March 11, 2021.

Unfortunately, the pandemic’s relentless mandates left many businesses suffering beyond the point of rescue, and well into 2021, business owners throughout Arizona are wondering if they were awarded PPP and/or EIDL loans, whether one or both can be included in their bankruptcy filing.

Our small business bankruptcy attorney in Tucson, Eric Ollason, can help determine your business’s bankruptcy eligibility while outlining how your PPP to EIDL loans may be eligible for inclusion in your filing.

Is My PPP or EIDL Loan Dischargeable in an Arizona Bankruptcy?

If your Arizona business is still suffering — even after receiving a PPP and/or EIDL loan — it may be in your best interest to speak with a small business bankruptcy attorney in Arizona today.

Fortunately for many struggling business owners, both certain PPP and EIDL loans are dischargeable during bankruptcy proceedings in Arizona and throughout the rest of the country.

That means, when your bankruptcy is approved by the trustee’s office, you will not owe the loan anymore, and will not have to pay it back.

First, we will determine the type of PPP and EIDL loans you received, as they may have been distributed as forgivable loans to begin with, which means when they were used properly, they were never scheduled to be paid back.

How Do I Know if My Arizona Business PPP or EIDL Loans Are Forgiven or if I Have to Pay Them Back?

If your business was approved for and received an EIDL grant, which was available in $1,000 increments for up to ten employees, this assistance does not have to be repaid, if it was used for working capital to pay rent, payroll, and other business expenses.

That means this grant would not have to be included in your business bankruptcy filing.

If you received an EIDL loan, which is different from the grant, you will need to include the amount of the loan in your business bankruptcy filing to be considered for discharge.

If you applied for and received a PPP loan, the major appeal of this loan was the promise of forgiveness for the amount that was used for authorized expenses.

If your business used this loan or a portion thereof for authorized expenses, some or all the loan amounts may already be scheduled for forgiveness and will not need to be included in your bankruptcy filing.

The only other consideration is whether you used collateral to secure your loan.

Only the EIDL loan application required collateral for loan applications above $25,000.

The collateral will include equipment or outstanding accounts receivables.

If your EIDL loan was more than $200,000 a personal guarantee was also required.

If you are facing financial difficulties and are unable to repay either your PPP or EIDL loans — when applicable for repayment — small business bankruptcy may be right for you.

It is important to act quickly, before either of your SBA loans go into default, as they may proceed with actions to recover the amount owed, which may remain valid if they reach the level of a lawsuit or lien, after filing for bankruptcy.

To discover what small business bankruptcy options are right for you, and how we may include your SBA loans in your filing, contact our experienced bankruptcy attorney in Tucson, Eric Ollason, to learn more about your legal rights and options to start fresh by calling (520) 791-2707 today to schedule a free consultation.