This is the last stop on the SBA default timeline, and this page will treat you like an adult about it: the tools here are real, several of them require no judge, and the balance grows once it arrives. It is also not hopeless, and the honest list of what still works is at the bottom. If your debt has not been referred yet, if you are still inside the 60-day demand letter window, stop reading this page and go act on that one; you have strictly more options there.
How a loan gets here, and what changes
Federal law (31 CFR 285.12) requires agencies to transfer eligible delinquent nontax debt to the Treasury’s Bureau of the Fiscal Service, generally by 120 days of delinquency for offset purposes and no later than 180 days for full cross-servicing. For a defaulted 7(a) loan, that happens after the lender’s liquidation wraps up, SBA classifies the loan “SBA Uncollectible,” the 60-day notice runs out, and SBA refers every remaining borrower and guarantor.
The change that matters most is jurisdictional. SBA’s servicing rules state that after referral, no one other than Treasury, not SBA and not your former lender, may take further servicing or liquidation action on the loan. Calls to SBA at this stage get redirected to Treasury, and the SBA Offer in Compromise process is closed. Your counterparty is now the Fiscal Service’s cross-servicing program and, frequently, a private collection agency working under its contract.
One more mechanical change: the balance. Federal law (31 U.S.C. 3717(e), implemented through Treasury’s rules and the Treasury Financial Manual) requires the costs of collection to be charged to the debtor, not absorbed by the government. The Fiscal Service sets its fee each fiscal year as a percentage of every dollar collected, up to the full cost of collection, including what it pays private collection agencies and the Department of Justice, and those amounts are added on top of the loan balance, interest, and penalties. Treasury does not publish a single flat rate for the public, but the direction is the only thing you need to plan around: the same debt costs more to exit at this stage than it did at any earlier one.
The toolkit, item by item
The Treasury Offset Program (TOP)
TOP is a matching database, not a person. Federal payments are automatically compared against referred debts, and matches are withheld before the money reaches you. Payments that can be offset include federal tax refunds, federal salary and military pay, federal retirement including OPM annuities, contractor and vendor payments, travel reimbursements, and covered federal benefits. For Social Security (and Railroad Retirement and Black Lung Part B) the offset is capped at the lesser of the debt, 15% of the monthly benefit, or the amount by which the benefit exceeds $750 a month; a benefit of $750 or less cannot be touched, and Supplemental Security Income is never subject to offset. Tax refunds carry no such floor. Offsets repeat, payment after payment, until the debt is resolved, and each one arrives with a notice letter after the fact. One practical wrinkle worth knowing: TOP itself cannot accept payments or discuss arrangements; resolving the debt happens with the cross-servicing program, not the offset machinery.
Administrative wage garnishment (AWG), no court order required
Under 31 U.S.C. 3720D and 31 CFR 285.11, the government can order a private employer to withhold up to 15% of your disposable pay (or, if less, the amount your disposable pay exceeds 30 times the federal minimum wage) for a delinquent federal debt, with no court order. The process has real procedural rights built in, and they reward speed:
- You must receive written notice at least 30 days before garnishment begins.
- You can request a hearing on the debt’s existence, its amount, or the repayment terms. If your request is received within 15 business days of the notice, no garnishment order may be issued until the hearing is decided.
- If you were involuntarily separated from a previous job, your wages cannot be garnished until you have been continuously reemployed for at least 12 months.
- You can ask at any time for the amount to be reduced for financial hardship, with documentation.
- Your employer is prohibited from firing or disciplining you because of the garnishment order.
Private collection agencies, credit reporting, and CAIVRS
The Fiscal Service places referred debts with contracted private collection agencies, which send the letters and make the calls, and it reports the debt to credit bureaus. Separately, SBA reports the defaulted balance to CAIVRS, the federal database that future SBA, FHA, VA, and USDA lenders check, so an unresolved default surfaces when you next seek federally backed credit. The debt following the person rather than the company is the personal guarantee doing what it was written to do; see what a default means for your personal guarantee.
Referral to the Department of Justice
For debts where a lawsuit is worth the cost, the file can be referred to the Department of Justice for litigation: suit on the note and guarantees, judgment, then judgment liens and execution. DOJ’s role also caps what others can agree to; compromises of debts with a principal balance over $500,000 generally require its approval. Most referred files are worked with offsets, garnishment, and collectors rather than litigation, but the option sits behind every large unresolved balance.
Why “get it recalled to SBA” rarely works
A cottage industry suggests the fix at this stage is pulling the debt back from Treasury so SBA can consider an offer in compromise. Read the actual rules and the narrowness is plain. Treasury’s guidance lets the Fiscal Service return a debt to the agency in limited circumstances: the debtor filed bankruptcy (the automatic stay stops collection), the debtor died or the entity dissolved, the debt turns out to be invalid or unenforceable, collection efforts have simply been exhausted, or the agency requests it and Fiscal Service agrees it is appropriate. SBA’s own servicing rules contemplate recalling a loan from Treasury when a bankruptcy or litigation notice arrives, so that SBA counsel can respond. What appears nowhere in either rulebook is a recall so that a debtor who declined to engage during the 60-day window can negotiate with SBA after all. It is not impossible; it is discretionary on both ends, and it is not a strategy to build a plan on.
What honestly remains
- Payment in full. Ends everything: the offsets, the garnishment, the fees running on new collections. Payment and arrangements go through the cross-servicing program (Treasury’s debt line is 888-826-3127; the TOP interactive line, 800-304-3107, can tell you which debts are in the offset database).
- An installment agreement. Treasury’s cross-servicing program is generally permitted to set up payment arrangements based on your documented ability to pay, and a live agreement is the standard way to stop AWG from starting.
- Compromise, through Treasury. The Fiscal Service holds delegated authority to compromise debts up to $500,000 in principal, and its private collection agencies have limited authority to negotiate within its rules. It exists; it is narrower and less predictable than the SBA process you no longer have, and, at this stage as at every other, anyone promising a settlement percentage is not being honest with you.
- Dispute, if the debt is wrong. If the debt is not yours, was paid, or the amount is incorrect, cross-servicing has a documented dispute process that routes the question back to SBA for verification, and an AWG hearing can decide the same questions for garnishment.
- The AWG protections above. The 15-business-day hearing request, the 12-month rule after involuntary job loss, and the hardship reduction are rights, but only if you exercise them on time.
- Bankruptcy. The automatic stay stops Treasury collection immediately, and SBA’s rules direct immediate notification so the loan may be recalled to SBA, and a discharge can end personal liability. Whether it is the right tool is a question for a bankruptcy attorney; start with how bankruptcy interacts with SBA loans.
What does not remain: the SBA Offer in Compromise, lender workouts, and the pre-referral flexibility this site spends several guides urging people to use in time. If someone you know is earlier in this process, the most useful thing this page can do is send them backward: the 60-day letter guide while the window is open, or the full default timeline before it even gets that far.
This is not legal advice
Treasury-stage debt sits at the intersection of federal collection law, your wages and benefits, your credit, and possibly bankruptcy. A business or bankruptcy attorney can evaluate defenses, hearings, and compromise realistically; what SBA workout help costs covers what that help runs and when it is worth paying for. Free counseling through an SBDC or SCORE remains available at every stage. This page explains the machinery; it does not substitute for advice on your specific debt.