Can You File Bankruptcy on SBA EIDL Loan?

Recently, we published the article What Happens to My SBA Loan If I File Bankruptcy, describing how Chapter 7 and 11 bankruptcies offer options for removing an SBA loan.

EIDL stands for Economic Injury Disaster Loan, a loan offered by the U.S. Small Business Administration (SBA) to help businesses recover from economic injuries caused by disasters, such as hurricanes, wildfires, or the COVID-19 pandemic.

SBA loan

EIDL loans can provide up to $2 million in assistance to eligible small businesses and non-profit organizations that have suffered economic harm due to a disaster. The loans can be used for various business expenses, including working capital, payroll, rent, and other operating costs.

EIDL loans generally have lower interest rates than other loans, and repayment terms can be extended up to 30 years. Additionally, the first payment on an EIDL loan may be deferred for up to a year.

To be eligible for an EIDL loan, a business or non-profit organization must be located in a declared disaster area, demonstrate that it has suffered an economic injury due to the disaster, and meet other eligibility criteria established by the SBA.


The Small Business Administration’s (SBA) Economic Injury Disaster Loan (EIDL) program offers assistance in the form of low-interest loans that can be used for working capital, fixed expenses, and other business costs.

Can You File Bankruptcy on an SBA EIDL Loan?

Yes, you Can File Bankruptcy on an SBA EIDL Loan. If a person or business takes out a loan without intent to repay it, they may be guilty of fraud and could be prevented from discharging it in bankruptcy. However, since most people take out SBA EIDL loans intending to use them to save their businesses and in the full knowledge that they need to repay them, they should not have any problem having them discharged in bankruptcy if their companies cannot survive due to continued economic fallout and hyperinflation.

Generally, when filing for bankruptcy on an SBA EIDL loan, specific criteria must be met before discharge is allowed. First and foremost, personal responsibility for repayment must lie solely with the borrower or guarantor. In addition, borrowers should make every effort to repay their loans, including making partial payments when possible. Finally, borrowers must demonstrate that they have done all that can reasonably be expected concerning repaying their loans and have made reasonable faith efforts towards repayment.

When filing for bankruptcy on an SBA EIDL loan, borrowers must prove reasonable faith efforts towards repayment. They must provide evidence such as bank statements showing payments made towards the loan and proof that all reasonable means were explored to try to obtain alternative sources of financing, such as grants or donations from family members or friends.

Additionally, borrowers must show that explored restructuring options lenders offer, such as deferment plans or forbearance agreements, to manage better their debt load. In some cases where a borrower has taken out multiple loans at once, which cannot feasibly be repaid due to financial hardship resulting from COVID-19-related issues such as decreased income or increased expenses due to health care bills related to illness or injury stemming from the virus – then these debts may also be eligible for discharge under Chapter 7 bankruptcy proceedings. In this case, debtors must show evidence of prolonged economic hardship resulting from COVID-19-related issues beyond what was expected before obtaining the loan(s).

To sum up, while filing bankruptcy on an SBA EIDL Loan is possible under certain circumstances, generally speaking, potential borrowers need to understand that if they take out this type of loan, they are ultimately responsible for repaying it unless otherwise exempted by filing chapter 7 bankruptcy proceedings, given prolonged economic hardship due to directly related issues stemming from COVID-19.


Please read our article about SBA Loan Status Disbursed Current.

Daniel Smith

Daniel Smith

Daniel Smith is an experienced economist and financial analyst from Utah. He has been in finance for nearly two decades, having worked as a senior analyst for Wells Fargo Bank for 19 years. After leaving Wells Fargo Bank in 2014, Daniel began a career as a finance consultant, advising companies and individuals on economic policy, labor relations, and financial management. At, Daniel writes about personal finance topics, value estimation, budgeting strategies, retirement planning, and portfolio diversification. Read more on Daniel Smith's biography page. Contact Daniel:

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