Federal Enforcement of COVID EIDL Loans: Defense Strategies for Borrowers Facing Collection

Course Description

This course details the federal administrative collection machine that activates when a borrower defaults on their COVID Economic Injury Disaster Loan (EIDL) – from SBA’s demand letters through Treasury’s cross-servicing, Offset Program, administrative wage garnishment, and DOJ referral. The instructors will discuss the background of EIDLs, the scale of the default crisis, the federal government’s statutory authority for collection, and the step-by-step timeline of collection actions. Attendees will learn about resolution options available at each stage of the process, and the importance of catching a defaulted EIDL early on. By the end of the course, attorneys should be able to determine where a client sits in the collection pipeline, recognize procedural failures by SBA or Treasury, and advise clients on the best path forward, which may include filing for bankruptcy.

Principles

• Know Where the Debt Is in the Pipeline
  • The first question is not simply whether the borrower is “in default,” but who currently controls the debt—SBA, Treasury, or DOJ.
  • The borrower’s available remedies and defenses can change substantially depending on that status.
• Act Early—Remedies Narrow as Collection Escalates
  • EIDL collection is a progressive pipeline, moving from SBA servicing and demand letters to Treasury offsets, administrative wage garnishment, and potentially DOJ litigation.
  • The earlier counsel intervenes, the greater the range of resolution options.
• The Federal Government Must Follow the Rules
  • Federal collection authority is powerful, but it is not unlimited.
  • Attorneys should scrutinize debt validity, balance calculations, notices, hearing rights, procedural requirements, and other due-process issues for potential defenses.
• Match the Defense to the Collection Mechanism
  • There is no single “EIDL defense.”
  • Counsel should identify the specific collection action—Treasury offset, wage garnishment, SBA servicing, or DOJ litigation—and then determine which procedural, substantive, hardship, or resolution strategy is available at that stage.
• Think Strategically About the Endgame, Including Bankruptcy
  • Counsel should evaluate whether continued administrative negotiation is realistic or whether the client’s circumstances call for a broader debt-relief strategy.
  • Chapter 7, Chapter 13, and Chapter 11 Subchapter V can have very different implications, so bankruptcy should be considered as part of the collection strategy rather than only after every other option has failed.

Syllabus

1. Background on EIDL Loans, the Scale of the EIDL Defaults, and Why 2026 is the Inflection Point
2. Statutory Framework: How DCIA and Federal Law Authorize Collection Without a Lawsuit
3. The Collection Pipeline: Step-by-Step Process from SBA Demand Letter to Administrative Wage Garnishment and DOJ Litigation
4. How to, and the Importance of, Determining Whether the Loan is Still SBA-Serviced, Transferred to Treasury, or Referred to DOJ
5. Treasury Offset Program Actions – Tax Refunds, Social Security Payments, and Federal Contractor Payments
6. The Narrowing Options at Each Stage of the Collection Pipeline
7. Hearing Defenses: Debt Invalidity, Amount Discrepancy, Financial Hardship, Lack of Due Process
8. Determining Whether Bankruptcy is Warranted, and if so, Which Type – Chapter 7, Chapter 13, or Chapter 11, Subchapter V?