EIDL Loan Sent to Collections: How to Resolve
So you opened your mail and there it was—a letter from the Department of Treasury, or from a collection agency you’ve never heard of, or from something called the “Bureau of the Fiscal Service” informing you that your EIDL loan has been “referred for collection” or “sent to Treasury for collection activities.” Your heart sank. This sounds SERIOUS. You knew you were behind on the loan, but now its been “sent to collections,” which feels like the situation just escalated to a whole new level of bad. Your wondering: What does this actually mean? Is this different from just being delinquent? What collection actions can they take against me now that its in collections? Can they garnish my wages, seize my bank account, take my house? And most importantly—is there anything you can do to resolve this now that its gotten to this point, or is it too late?
Here’s what you need to know: **When your EIDL loan is “sent to collections,” it typically means the SBA has referred your delinquent debt to the Department of Treasury’s Bureau of the Fiscal Service for aggressive collection using the full range of federal debt collection tools**. This usually happens after your loan has been delinquent for approximately 180 days (6 months), though the SBA has changed policies and is now referring some loans earlier, especially smaller loans under $100,000 that previously wouldnt have been referred. Once your loan is with Treasury, several serious things happen immediately: A 30% penalty is added to your outstanding balance (so a $100,000 debt becomes $130,000 overnight), Treasury begins using administrative collection tools including tax refund offset, wage garnishment if you signed a personal guarantee, and referral to private collection agencies who work on commission and can be extremely aggressive. The SBA no longer services your loan—if you call them, they’ll tell you to contact Treasury, because they dont control it anymore.
However, “sent to collections” doesnt mean its hopeless or that you have no options. This article explains what it actually means when an EIDL loan goes to collections, the timeline and process for how it happens, what collection actions Treasury and collection agencies can take against you, the 30% penalty and how it works, what options you still have to resolve the debt once its in collections (payment plans, offers in compromise, bankruptcy), the difference between “charged off” and “sent to collections,” whether you can negotiate after the fact, what you absolutely shouldnt do when facing collections, and how to protect yourself from improper or abusive collection tactics. If your EIDL loan has been sent to collections, understanding what that means and what options remain is critical to resolving the situation.
What Does It Mean When an EIDL Loan Is “Sent to Collections”?
When the SBA says your EIDL loan has been “sent to collections” or “referred for collection,” it almost always means one of two things:
Referral to Treasury’s Bureau of the Fiscal Service: This is the most common scenario. Your delinquent EIDL loan has been transferred from the SBA’s loan servicing system to the Department of Treasury’s Bureau of the Fiscal Service for collection. Treasury operates two main collection programs: the Treasury Offset Program (TOP), which intercepts federal payments like tax refunds and applies them to your debt, and the Cross-Servicing Program (CSP), which uses broader collection tools including wage garnishment, private collection agencies, liens, and levies. Once your loan is with Treasury, the SBA no longer services it—you cant contact the SBA to arrange payment plans or ask for accommodations, because Treasury is now in charge of collection.
Referral to a private collection agency: In some cases, the SBA or Treasury contracts with private collection agencies to pursue collection on there behalf. You might receive letters and calls from companies like Performant Recovery, CBE Group, or other agencies that specialize in collecting federal debts. These agencies work on commission—they get a percentage of what they collect—so there motivated to be persistent and aggressive (though they still must comply with the Fair Debt Collection Practices Act, which prohibits harassment and certain abusive tactics). The debt is still owed to the federal government (the SBA), but the collection agency is handling day-to-day collection activities on behalf of Treasury.
Being “sent to collections” is different from just being delinquent or in default. You can be delinquent (missing payments) while the SBA is still servicing the loan and trying to work with you. But once the loan is sent to collections—referred to Treasury—the situation has escalated. The SBA has determined that standard servicing isnt working, and they’ve turned the debt over to the federal government’s aggressive collection arm. This means collection activities will intensify, and the tools used to collect will be more powerful and less flexible than what the SBA uses during normal servicing.
When and How Do EIDL Loans Get Sent to Collections?
The timeline and process for EIDL loans being sent to collections has evolved over time, especially for COVID-19 EIDL loans. Here’s the typical progression:
0-120 days of delinquency: When you first miss payments, the SBA sends letters and makes calls trying to collect. They might offer payment plans, deferments, or hardship accommodations (though many such programs ended in 2025). Your loan is delinquent, but its not yet in default and hasnt been referred to collections. This is the time when the SBA is most willing to work with you and negotiate solutions.
120-180 days of delinquency: If you havent made payments or worked out an arrangement by around 120 days, the SBA classifies the loan as in default. Default is a legal status meaning you’ve materially breached the loan agreement. At this stage, the SBA might accelerate the debt (declare the entire balance due immediately rather than continuing on a payment schedule), and they prepare to refer the loan to Treasury for collection. You might receive a demand letter giving you a final opportunity to pay before referral—sometimes theres a 60-day notice before referral to Treasury.
180+ days of delinquency (typical referral point): Historically, the SBA referred loans to Treasury’s Bureau of the Fiscal Service after they’d been delinquent for approximately 180 days (6 months). The Debt Collection Improvement Act of 1996 requires federal agencies to refer debts that are more than 180 days delinquent to Treasury for cross-servicing unless theres a specific reason not to. So 180 days has been the general threshold. However, the SBA changed its policies in 2024-2025 and is now referring some loans more quickly (after 60-120 days in some cases), and is also referring smaller loans (under $100,000) that previously wouldnt have been referred at all.
What triggers referral: Besides just the passage of time, referral is more likely if you’ve made no effort to communicate with the SBA, you’ve made zero payments, you’ve ignored notices and calls, or the SBA believes you have no intention of repaying. Conversely, if you’ve been communicating, making partial payments, and trying to work out accommodations, the SBA might delay referral. But this is discretionary—theres no guarantee that good-faith efforts prevent referral if your far enough behind.
Once the referral happens, you’ll receive notice from Treasury (or from a collection agency working on behalf of Treasury) that your loan has been transferred for collection. By the time you get this notice, the referral is usually final—the SBA wont take the loan back, and your now dealing with Treasury for the duration.
What Collection Actions Can Treasury and Collection Agencies Take?
Once your EIDL loan is in collections with Treasury, the government has extensive collection powers that go beyond what private creditors can do:
Tax refund offset (Treasury Offset Program): If your entitled to federal tax refunds, they’ll be automatically intercepted and applied to your EIDL debt. This happens through the Treasury Offset Program (TOP), and it continues every year until the debt is paid in full. If you typically get a $3,000 refund, expect to lose it to the offset—you’ll get a notice after the fact explaining that your refund was seized to satisfy your delinquent federal debt.
Administrative Wage Garnishment (if you signed a personal guarantee): If you personally guaranteed the EIDL loan (required for loans over $200,000), Treasury can garnish up to 15% of your disposable wages directly from your paycheck without first going to court. They send a garnishment order to your employer, and your employer is legally required to withhold the specified amount and send it to Treasury. This continues until the debt is paid in full, which could be years or even decades for a large balance.
Federal payment offset: Treasury can offset other federal payments your entitled to receive, including Social Security benefits in some cases (though there are restrictions and exemptions for Social Security—more on that in a separate article), federal employee salaries, federal contractor payments, and other government payments. Basically, if the federal government owes you money, they can intercept it and apply it to your EIDL debt.
Bank account levy: If you have a personal guarantee making you individually liable, Treasury can freeze and seize funds in your personal bank accounts through a levy. You could wake up one morning and find your checking account frozen with all funds seized to satisfy the debt.
Real property liens: Treasury (or the SBA if they sue you first) can obtain a judgment and record a lien on real estate you own, including your personal residence if you personally guaranteed the loan. The lien must be satisfied before you can sell or refinance the property.
Credit reporting: If you signed a personal guarantee, the defaulted debt will be reported to consumer credit bureaus under your Social Security number, destroying your personal credit score. The debt remains on your credit report for seven years from the date of first delinquency.
Referral to private collection agencies: Treasury contracts with private collection agencies who call you, send letters, and pressure you to pay. These agencies can be extremely aggressive and persistent (they work on commission), though they must still comply with the Fair Debt Collection Practices Act’s restrictions on harassment and abuse.
Legal action: In some cases, Treasury or the Department of Justice can file a lawsuit against you to obtain a judgment for the debt. Lawsuits are relatively rare for EIDL defaults unless the amount is very large or theres evidence of fraud, but they can happen.
The key thing to understand: Treasury has administrative collection powers that dont require going to court first. They can garnish your wages, offset your tax refunds, and levy your bank accounts through administrative processes—they dont need a judge’s permission the way a private creditor would. This makes Treasury collection much more powerful and harder to fight than normal debt collection.
The 30% Penalty—What It Is and How It Works
One of the most painful aspects of having your EIDL loan referred to Treasury is the 30% collection penalty that’s automatically added to your debt:
When Treasury receives your loan for collection, they add a penalty equal to 30% of the outstanding principal and accrued interest at the time of referral. This penalty is authorized by federal law to cover Treasury’s collection costs and to penalize borrowers who didnt pay before the debt was referred. If you owed $100,000 when the loan was referred, your balance becomes $130,000 immediately—a $30,000 penalty added overnight. If you owed $250,000, it becomes $325,000. This 30% penalty is NON-NEGOTIABLE—theres no waiver, no exception, no way to get it reduced or removed. Once the loan is referred, the penalty is added automatically, and you now owe 30% more than you owed the day before.
The 30% penalty accrues interest just like the rest of the debt, so it grows over time. And it must be paid along with the principal if you ever pay off or settle the debt. This is why its so critical to address EIDL delinquency BEFORE the loan gets referred to Treasury—once its referred, your debt increases by nearly one-third instantly, and theres nothing you can do about it.
If you’ve already been referred and the 30% penalty has been added, you cant reverse it. Your only options are to pay the full amount including the penalty, negotiate a settlement that includes the penalty (if the government agrees to settle), or file bankruptcy to discharge the debt including the penalty. But the penalty itself wont be waived or reduced just because you complain about it being unfair.
What Options Do You Have to Resolve the Debt Once Its in Collections?
Just because your EIDL loan has been sent to collections doesnt mean you have no options. Here’s what you can still do to address the debt:
Negotiate a payment plan with Treasury: Treasury will consider installment payment agreements where you make monthly payments based on your ability to pay. These arent as generous or flexible as accommodations the SBA might have offered before referral, but they provide a structured way to address the debt and can stop or prevent wage garnishment if you’re making regular payments under an agreement. Contact the Bureau of the Fiscal Service (the contact info should be in the collection notice you received) and propose a payment amount you can afford. Treasury will evaluate your financial situation and might agree to accept monthly payments.
Offer in Compromise (if available): You can attempt to settle the debt for less than the full amount through an Offer in Compromise, where you propose a lump-sum payment (or short-term payment plan) to satisfy the debt and Treasury releases you from the balance. However, OIC for EIDL loans has become extremely restricted or unavailable as of 2025—many borrowers report that the SBA/Treasury is no longer accepting OIC for EIDL debt. If OIC is available, Treasury will calculate your Reasonable Collection Potential (how much they could collect through forced collection over time) and will only accept an offer thats at least equal to your RCP. Success rates for OIC are relatively low (around 35% historically), and theres no guarantee your offer will be accepted.
Bankruptcy to discharge the debt: Filing bankruptcy (Chapter 7 or Chapter 13) can eliminate your personal liability for the EIDL debt, including the 30% penalty that was added when the loan went to Treasury. Bankruptcy stops all collection actions immediately through the automatic stay—wage garnishments stop, tax refund offsets stop, collection calls stop. EIDL debt is dischargeable in bankruptcy as long as it wasnt obtained through fraud. If the debt is large and unmanageable, bankruptcy might be your most realistic option for eliminating it. Consult with a bankruptcy attorney to evaluate whether you qualify and whether bankruptcy makes sense for your situation.
Request hardship exemption from garnishment: If Treasury has initiated wage garnishment and its causing you severe financial hardship (you cant afford basic necessities like rent and food after the garnishment), you can request a hardship exemption or reduction in the garnishment amount. This requires documenting your income and expenses and proving the hardship, but it can temporarily stop or reduce garnishment if you meet the criteria.
Dispute errors if the debt isnt yours or the amount is wrong: If the collection notice is for a debt that isnt yours, or if the amount being claimed is substantially wrong (they’re claiming you owe $200,000 when you actually owe $100,000 and can prove it), you have the right to dispute the debt. Send a written dispute to Treasury within 30 days of receiving the collection notice (or whatever timeframe is specified in the notice), explain the error, and provide documentation. Treasury is required to investigate and verify the debt before continuing collection.
Continue making partial payments to show good faith: If you cant afford full payments but you can make partial payments, continue making them. Borrowers who make some payments while trying to work out solutions are viewed more favorably than borrowers who stop paying entirely. Partial payments wont stop all collection actions, but they demonstrate good faith and might make Treasury more willing to work with you on a payment plan.
What Does “Charged Off” Mean, and Is It Different from “Sent to Collections”?
You might see the term “charged off” on your credit report or in correspondence about your EIDL loan, and its important to understand what this means:
A “charge-off” is an accounting term that means the lender (the SBA) has written the debt off as a loss on there books. After a certain period of non-payment (typically 120-180 days), the SBA classifies the loan as uncollectible from a bookkeeping perspective and moves it to there “loss” column. This is required by accounting standards—loans that are severely delinquent must be charged off.
BUT—and this is critical—”charged off” does NOT mean forgiven. It does NOT mean you no longer owe the debt. It does NOT mean the SBA gave up on collecting. All it means is that the SBA changed how they account for the debt on there internal books. You still legally owe every dollar of the original debt, and the SBA/Treasury will still pursue collection.
In fact, when a loan is charged off, its usually sent to collections at the same time or shortly after. The charge-off is the SBA’s accounting response to the default, and sending it to Treasury for collection is the SBA’s operational response. So “charged off” and “sent to collections” often go hand in hand—the loan is charged off (accounting) and referred to Treasury (collection) as part of the same process.
If you see “charge-off” on your credit report, dont think that means the debt disappeared. It means the exact opposite—the SBA gave up on you paying voluntarily, classified the debt as a loss, and sent it to Treasury for aggressive forced collection. Your in a worse position after a charge-off, not a better one.
What You Absolutely Should NOT Do When Your Loan Is in Collections
When your EIDL loan is in collections and your panicking, its tempting to make desperate moves that can actually make things worse. Here’s what NOT to do:
Dont ignore the collection notices. Ignoring letters from Treasury or collection agencies wont make the debt go away—it will only escalate collection. Treasury will interpret non-response as refusal to pay, and they’ll move to garnishment, levy, and other aggressive actions more quickly. Respond to notices, even if you cant pay the full amount. Acknowledge the debt, explain your situation, and propose solutions.
Dont transfer assets to hide them from collection. Moving money out of your bank accounts into someone else’s accounts, transferring your house to your spouse or kids, or hiding assets to avoid seizure is called fraudulent conveyance, and it can result in criminal charges. Courts can claw back fraudulent transfers and undo them, and you’ll face much worse consequences than just owing the debt. If you have assets that are at risk, consult with an attorney about legal ways to protect them (like exemptions or bankruptcy planning), but dont engage in fraud.
Dont make partial payments on a personal guarantee if the business is closed and bankrupt. If the business is defunct and you have no realistic way to ever pay the full debt, making token partial payments might actually hurt you. Every payment you make can restart the statute of limitations on collection, and your throwing away money you’ll need for bankruptcy filing fees or living expenses. If the debt is genuinely unmanageable, stop paying, consult with a bankruptcy attorney, and pursue discharge rather than making payments that accomplish nothing.
Dont believe scammers who claim they can “erase” federal debt for a fee. There are scammers targeting EIDL borrowers who claim they have special programs or connections that can eliminate your debt if you pay them an upfront fee. These are SCAMS. Theres no secret program that erases federal debt. The only legal ways to eliminate EIDL debt are paying it in full, settling it through OIC (if available), or discharging it in bankruptcy. Anyone who claims otherwise is lying.
Dont agree to payment plans you cant sustain. If a collection agency pressures you to agree to pay $1,000/month and you cant afford that, dont agree just to get them off the phone. If you agree to a payment plan and then miss payments, it looks worse than if you’d never agreed in the first place. Only commit to payment amounts you can realistically sustain based on your actual budget.
Talk to an SBA Debt Attorney Today
Having your EIDL loan sent to collections is serious, and the consequences—30% penalties, wage garnishment, tax refund offset, aggressive private collection agencies—can be financially devastating. But even after your loan is in collections, you have options. Payment plans might be possible, bankruptcy can eliminate the debt entirely, and in some cases settlement might still be available.
Our firm helps EIDL borrowers resolve debts that have been sent to collections. We negotiate with Treasury and collection agencies on payment arrangements and settlements. We represent clients in bankruptcy to discharge collection debts including the 30% penalty. We challenge improper garnishments and levies. We advise on legal strategies to protect income and assets during collection. And we ensure that collection agencies comply with the law and dont use illegal harassment or abusive tactics.
If your EIDL loan has been sent to collections, contact us today for a free consultation. We’ll review the collection notices and explain exactly what collection actions your facing. We’ll evaluate whether you can negotiate a payment plan or settlement. We’ll assess whether bankruptcy makes sense to eliminate the debt. We’ll advise on how to protect yourself from improper collection tactics. And we’ll develop a strategy to resolve the debt in the least damaging way possible. The consultation is free and confidential, but it could be the difference between facing collections blindly and having a plan to address the debt.
Collections are serious, but they’re not hopeless. Call us now to explore your options.