EIDL Landscape in Vermont
Moderate EIDL; tourism-dependent small business.
COVID-19 Economic Injury Disaster Loans (EIDL) were issued by the U.S. Small Business Administration under 15 U.S.C. Section 636(b)(2) as amended by the CARES Act. For Vermont businesses, EIDLs went up to $2 million per borrower, at 3.75% interest for for-profits and 2.75% for nonprofits, over 30-year terms. The first-year deferment and 24-month extension kept most Vermont borrowers out of default until 2023-2024.
Is EIDL Forgivable?
The main COVID EIDL loan is NOT forgivable. This is the single most common confusion. Only the EIDL Advance (the $1,000-$10,000 grant piece) was forgivable, and the Targeted EIDL Advance and Supplemental Targeted Advance for qualifying businesses in low-income communities.
The main loan portion must be repaid. Vermont small-business owners facing EIDL default have several paths:
- SBA Offer in Compromise (OIC) -- negotiate a reduced payoff based on business closure, asset depletion, or collection difficulty. See SBA OIC mechanics.
- Hardship Accommodation Plan (HAP) -- reduced payment for 6-12 months, renewable.
- Treasury Offset -- If the loan is transferred to Treasury for collection, tax refunds and federal payments are offset.
- Bankruptcy -- Chapter 7, Subchapter V, or personal Chapter 7/13 depending on structure.
UCC Liens on Your Vermont Business
Collateral structure: VT Article 9 UCC.
For EIDL loans over $25,000 (originally $200,000 pre-September 2020 modification), the SBA filed a UCC-1 financing statement against the borrowing entity's business assets. This blanket lien typically covers:
- All equipment, furniture, fixtures, machinery.
- All accounts receivable and contract rights.
- All inventory.
- All general intangibles (goodwill, IP, licenses).
- Proceeds of any of the above.
For a Vermont small business planning asset sale, ownership transfer, or bankruptcy, the UCC-1 must be addressed. Failure to clear the lien before sale can trigger SBA recapture rights.
Personal Guarantee Exposure in Vermont
PG rules: PG over $200K.
EIDL loans above $200,000 required a personal guarantee from owners with 20%+ equity. When the business defaults, the SBA (or Treasury after referral) can pursue the PG signer personally -- even if the business is dissolved. PG exposure in Vermont means:
- Treasury Offset Program (TOP) intercepts federal payments (tax refunds, SSA in excess of $750/month, federal contractor payments).
- Administrative wage garnishment under 31 U.S.C. Section 3720D (up to 15% of disposable pay).
- Credit-report reporting as defaulted federal debt.
- Potential DOJ referral for judgment suit if amounts and collectability warrant.
Subchapter V and EIDL in Vermont
Subchapter V of Chapter 11 (11 U.S.C. Sections 1181-1195) is the small-business restructuring track enacted by the Small Business Reorganization Act of 2019. For Vermont EIDL borrowers, Subchapter V offers:
- Automatic stay. SBA collection halts on filing under 11 U.S.C. Section 362.
- No disclosure statement required. Simplifies the plan confirmation timeline -- typically 90 days from filing.
- No competing plan. Only the debtor proposes a plan; avoids creditor-plan leverage.
- Cramdown simplified. Plan can be confirmed over creditor objection if it satisfies "fair and equitable" test, which is more debtor-friendly than standard Chapter 11.
- Projected disposable income (PDI) commitment. 3-5 year plan commits PDI rather than full face-value repayment.
- Debt cap. $3,024,725 aggregate noncontingent liquidated debt (2024 adjusted figure; increases with CPI). Most Vermont EIDL-only small businesses fit within the cap.
Subchapter V trustee is a non-operating oversight figure; the debtor remains in possession.
Bankruptcy Discharge of EIDL in Vermont
EIDL is not among the nondischargeable debts listed in 11 U.S.C. Section 523(a). For Vermont borrowers, this means:
- Business-only EIDL (no PG) -- In a business Ch 7, the loan is discharged with the entity's dissolution. No personal exposure because there was no PG.
- PG'd EIDL, personal Ch 7 -- The PG liability is discharged unless the SBA can prove 523(a)(2) fraud, 523(a)(4) fiduciary misconduct, or 523(a)(6) willful-malicious injury -- rare in commercial lending contexts.
- PG'd EIDL, personal Ch 13 -- PG liability is paid pro-rata through the plan; unpaid balance discharged at plan completion.
- Business Ch 11 / Sub V -- EIDL treated as secured to the value of collateral, unsecured for the balance. Unsecured portion gets plan treatment.
The SBA does periodically challenge discharge on 523(a)(2) grounds when it can show the borrower materially misrepresented business conditions or mis-used loan proceeds. Document retention of original application, use-of-proceeds records, and communications is critical.
Vermont Small Business Chapter 7 vs Sub V Decision
For Vermont EIDL borrowers weighing Ch 7 vs Sub V:
| Factor | Chapter 7 (business) | Subchapter V |
|---|---|---|
| Business continues? | No -- liquidation | Yes -- reorganization |
| Cost | Lower (trustee handles) | Higher (debtor-in-possession) |
| Timeline | ~4-6 months | ~6-12 months to confirmation; 3-5 year plan |
| PG exposure | Separate personal filing often needed | Plan can address jointly via companion personal filing |
| EIDL lien on assets | Trustee disposes of collateral | Debtor retains operational assets under plan |
Vermont Treasury Offset and EIDL Collection
When SBA transfers a defaulted EIDL to Treasury for collection (typically 120-180 days after default), the full Treasury Offset Program toolkit activates: federal tax refund intercepts, SSA above the $750/month floor, federal contract payment intercepts, and administrative wage garnishment up to 15% of disposable pay. See Treasury Offset mechanics.
Vermont-specific: state tax refunds are not subject to federal TOP. Only federal payments. State-law exemptions (homestead, ERISA retirement) are respected by federal collection for account-level seizures, but do not block wage garnishment or tax-refund offsets.