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How Can I Still Be Liable To The Sba When My Ex Wife Assumed This Debt In The Divorce

How Can I Still Be Liable To The SBA When My Ex-Wife Assumed This Debt In The Divorce?

Divorce can be complicated enough without having to deal with the division of debts as well. If your ex-wife agreed to assume an SBA loan as part of your divorce settlement, you may think you’re off the hook. But that’s not always the case. Here’s what you need to know about still being liable for an SBA loan after divorce.

The SBA Won’t Release You From Liability

When you took out an SBA-guaranteed loan, you signed a promissory note agreeing to repay it. The SBA will not release you from this legal obligation simply because of a divorce. So even if your divorce decree states your ex-wife will assume the loan, the SBA still views you as liable for repaying it.

This is because the SBA did not sign your divorce agreement. They were not involved in those negotiations. So that agreement has no legal bearing on your original promissory note with the SBA.

Your Ex May Stop Making Payments

Your ex-wife may have every intention of making the SBA loan payments as agreed in the divorce. But circumstances can change. If she loses her job or has other financial troubles down the road, she may stop making the payments.

Yet even if your ex defaults on the loan, the SBA will come looking to you for repayment. After all, you are still legally obligated under the original promissory note.

So you could find yourself on the hook for a loan you thought your ex-wife had assumed. This has left many divorced borrowers in financial hot water.

The SBA Can Garnish Your Wages and Assets

If your ex-wife stops making loan payments, the SBA won’t just ask nicely for you to repay the loan. They have the same collection rights against you as any other creditor.

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This means the SBA can take collection actions like:

  • Garnishing your wages
  • Seizing tax refunds
  • Putting liens on your property
  • Foreclosing on assets like your home and other real estate

In other words, they can seriously damage your financial life. The SBA will use all legal means at their disposal to recover what is owed on the loan.

You Can’t Claim It Was Discharged in Bankruptcy

Some people think they can get out of repaying an SBA loan by filing for bankruptcy after the divorce. But this is not the case.

SBA-guaranteed loans are not dischargeable in bankruptcy except in extremely rare cases of undue hardship. So claiming the loan in bankruptcy will not release you from liability.

Your Credit Score Will Be Damaged

To make matters worse, if your ex-wife stops repaying the SBA loan, it will almost certainly go into default. This default will be reported on your credit record, damaging your credit score.

This can make it difficult for you to qualify for financing, rent an apartment, or get utilities connected. Your credit score affects many aspects of your financial life. A defaulted SBA loan can wreak havoc on it.

You Can Seek Reimbursement From Your Ex

So what recourse do you have if your ex-wife sticks you with her loan payments? You may be able to seek reimbursement from her for any SBA loan amounts you repay.

If your divorce decree clearly assigned responsibility for the loan to her, a court may order her to reimburse you for the payments. But this requires taking legal action against her, which could be time-consuming and expensive.

The judge may or may not rule in your favor. And even if you get a judgment against her, collecting the money could be difficult or impossible.

Refinancing the Loan Could Release You From Liability

One option that may help is to refinance the SBA loan solely in your ex-wife’s name. This would pay off the old loan and create a new loan with her as the only borrower.

Refinancing could release you from liability for the debt going forward. However, your ex-wife would need to qualify for the new loan on her own. If she can’t, refinancing may not be possible.

And you’d remain liable for any missed payments or defaults on the old loan up to the time it was refinanced. Those could still damage your credit.

You Could Pay Off the Loan Yourself

As unpleasant as it may be, paying off the SBA loan yourself may be the only surefire way to release yourself from liability. This obviously places a potentially heavy financial burden on you.

But if you can afford to pay off the SBA loan, either in a lump sum or through a repayment plan, doing so protects your credit and prevents the SBA from taking collection actions against you.

Just be sure to get written confirmation from the SBA that your loan has been paid in full. This is your evidence that you no longer owe anything.

Consult an Attorney About Your Options

The bottom line is that divorce does not automatically release you from liability for any debts you or your spouse incurred during the marriage – including an SBA loan.

Your best bet may be to consult an attorney who specializes in both divorce and debt matters. They can review your specific situation and divorce decree.

An attorney can then advise you on the best course of action to limit your liability exposure for the SBA loan your ex-wife agreed to assume.

Acting quickly gives you the most options. So don’t delay in seeking professional legal advice. It could save you from significant financial hardship down the road.

Frequently Asked Questions

Can my ex-wife take me back to court to try and make me pay the SBA loan?

Yes, if you originally agreed to be responsible for the SBA loan in your divorce decree, your ex-wife could potentially take you back to court to compel you to pay. An attorney can advise you on defending against this.

What if my ex-wife files bankruptcy – will that eliminate the SBA loan?

No, SBA loans are rarely dischargeable in bankruptcy. So your ex filing bankruptcy would not release either of you from liability for the loan.

Can I negotiate with the SBA to reduce what I owe on the loan?

You can try, but the SBA is generally unwilling to forgive or reduce loan balances. They will pursue every avenue to recover what is owed. Any deal will likely require repayment in full.

What if I don’t have the money to pay off the SBA loan myself?

If you can’t pay it off immediately, the SBA may be willing to work out a repayment plan with you. This won’t eliminate the loan, but can prevent further collection actions as long as you stick to the repayment schedule.

Is there any way getting divorced can release me from an SBA loan?

The only sure way is likely to pay off the loan yourself. Or refinance it solely in your ex’s name if possible. Aside from that, you remain liable even after the divorce.

Key Takeaways

  • The SBA will still hold you liable for a loan even if your divorce decree transferred responsibility to your ex-wife
  • You remain legally obligated under the original promissory note you signed
  • If your ex defaults, the SBA can take collection actions against you like garnishing wages and seizing assets
  • Refinancing the loan or paying it off yourself may be the only ways to definitively eliminate your liability
  • Consult an attorney to understand all your options and liability risks

Divorce decrees do not supersede the binding agreements made with creditors like the SBA. So proceed with caution if your spouse agrees to assume loans. And act quickly after the divorce to limit liability for debts you may end up paying.

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