Are PPP / EIDL Loans Eliminated in Bankruptcy?
Bankruptcy offers debtors immediate relief either by discharging certain debts in a Chapter 7 bankruptcy or ordering a favorable payment plan in Chapter 13, which gives the debtor more time to settle their debts as they can do so in arrears for 3 to 5 years.
Before immediately resorting to bankruptcy, however, it is recommended that a debtor first exhaust other options, such as downgrading their lifestyle, liquidating some of their assets, or obtaining loans such as a PPP or EIDL loan.
What is a PPP or EIDL Loan?
Paycheck protection program (PPP) loans and economic injury disaster loans (EIDL) were both provided as a form of relief for business owners who were affected by the onslaught of the Covid-19 pandemic. Upon applying for this relief, the businesses were funded by the CARES Act, administered by the Small Business Administration.
Through PPP loans, businesses were able to cover the costs of:
- Payroll for their employees
- Mortgage interest
- Utility costs
On the other hand, EIDL loans equipped businesses with the financial means to pay for:
- Payroll costs
- Employee benefits
- Fixed debts
- Other bills
While PPP and EIDL loans did benefit business owners, a lot of those who applied for the relief now face the problem of how to pay for them. Considering that the situation with the pandemic is not getting any better, businesses are now facing another financial strain with the added burden of having to pay back their PPP and EIDL loans. But here’s the good news.
PPP and EIDL Loans Can Be Eliminated in Bankruptcy
The PPP and EIDL are all administered by the Small Business Administration (SBA), an entity of the US government who was authorized under the Cares Act to extend additional funding to business owners.
With that, PPP or EIDL loans are dischargeable in a Chapter 7 bankruptcy. Business owners who are in a position where they’ve used up the financial relief and have no other options can file for bankruptcy and have the debts discharged.