PPP Loans, EIDL Loans, and Subchapter V Treatment in 2026
Melissa Youngman, PA and Winter Park Estate Plans & ReOrgs represent businesses in Chapter 11 and Subchapter V cases before the United States Bankruptcy Court for the Middle District of Florida, including the Orlando, Jacksonville, Tampa, and Fort Myers divisions, with a primary practice footprint in Orange, Seminole, Osceola, Volusia, Lake, and Brevard counties.
Five years after the pandemic-era Paycheck Protection Program and COVID Economic Injury Disaster Loan program closed their doors, a large number of Central Florida small businesses are still carrying that debt on their balance sheets. Some never applied for PPP forgiveness. Some applied and were denied. Some took an EIDL loan large enough to require a personal guaranty and are only now feeling the collection pressure that follows. None of that debt disappears by itself, and the Small Business Administration has grown considerably more aggressive about collecting it.
This post explains how PPP and EIDL balances are actually treated once a business files Subchapter V, and where the personal guaranty on a larger EIDL loan does and does not follow the business owner into the case. It is written for the Winter Park restaurant owner, the Orlando retailer, or the Maitland services firm that took pandemic-era SBA money in good faith and now needs a clear-eyed answer about what a reorganization does and does not fix.
Why SBA Debt Is Suddenly a Live Issue Again
11 U.S.C. § 502 governs how a claim, including a claim held by a federal agency such as the SBA, is allowed and valued in a bankruptcy case, and that starting point matters more in 2026 than it did a year ago. A waiver that had let the SBA continue servicing delinquent COVID-era EIDL loans past the usual referral deadline expired on March 31, 2026. On April 24, 2026, the SBA referred roughly 562,000 defaulted pandemic-era EIDL and PPP loans, totaling about $22.2 billion, to the Department of the Treasury for collection, describing it as the largest such referral package in the agency's history. Treasury collection means offset against future federal payments, and in more serious cases, referral to the Department of Justice for potential litigation. For a business that has been receiving servicing letters rather than lawsuits, that shift could finally force a decision about whether to restructure. A claim referred to Treasury does not stop being a claim. Once a case is filed, it is allowed, valued, and classified under the Bankruptcy Code exactly like any other creditor's claim.
EIDL Loans Are Secured Up to Collateral Value, Not Automatically Wiped Out
11 U.S.C. § 506(a) allows a secured claim to be split into a secured piece, up to the value of the collateral, and an unsecured deficiency balance for whatever is left. Most COVID-era EIDL loans above $25,000 were secured by a blanket lien on the business's assets, so this bifurcation rule, not blanket forgiveness, is what actually happens to EIDL debt in a Subchapter V case. The secured portion is paid based on the value of the collateral securing it. The unsecured deficiency, which for a heavily leveraged small business can be the larger share of the loan, is treated the same as any other unsecured claim under the plan, subject to the projected disposable income requirements of § 1191(c) if the plan is confirmed nonconsensually. A business that assumes an EIDL balance simply vanishes in Subchapter V is working from a mistaken premise, and that mistake shapes bad decisions about timing.
The $200,000 Personal Guaranty Threshold and Why It Does Not Travel With the Company's Discharge
11 U.S.C. § 524(e) provides that the discharge of a debtor does not affect the liability of any other entity for that same debt, and this is the provision that controls what happens to an owner who personally guaranteed an EIDL loan. SBA COVID EIDL loans above $200,000 generally required a personal guaranty from any individual owning 20 percent or more of the business, while loans at or below that threshold typically did not. When the company reorganizes under Subchapter V, the plan restructures the company's obligation, but § 524(e) means the guaranty itself is not automatically discharged along with it. A guarantor who wants relief from that exposure has to address it separately, whether through negotiation with the SBA, a settlement built into the plan process, or, in some cases, the guarantor's own individual bankruptcy filing.
PPP Forgiveness Denials Become Ordinary Unsecured Claims
11 U.S.C. § 1191(b) allows a Subchapter V plan to bind a dissenting unsecured class so long as the plan commits the debtor's projected disposable income for three to five years, and a denied PPP loan generally lands squarely in that unsecured class. A PPP loan that was fully forgiven never becomes a debt at all. A PPP loan that was denied forgiveness, whether for a payroll documentation problem, an owner-compensation cap issue, or a covered-period miscalculation, converts back into an ordinary unsecured obligation to the SBA or the originating lender. It does not receive priority status under § 507, and it is not treated more favorably than a landlord's unsecured deficiency claim or a vendor's open invoice. The practical consequence is that a business carrying a large denied PPP balance alongside other unsecured debt can address all of it in a single Subchapter V plan rather than negotiating the SBA piece separately.
The SBA as a Creditor, Not a Special Party
11 U.S.C. § 1189 gives only the debtor the right to file a Subchapter V plan, and that single rule explains why the SBA's role in these cases looks different from what many business owners expect after dealing with the agency's servicing contractors for years. Once a case is filed, the SBA participates the way any institutional creditor does. It can object to plan confirmation, vote its claim, and raise eligibility challenges, but it cannot file a competing plan, and it does not receive a seat at the table beyond what its claim size and classification would otherwise support. Business owners who have spent months negotiating hardship plans directly with SBA loan servicers sometimes expect the agency to hold outsized leverage inside a bankruptcy case. In practice, the claims-and-classification framework of Chapter 11 applies to the SBA the same way it applies to a community bank or an equipment lender.
What This Means for Central Florida Businesses Carrying Pandemic-Era SBA Debt
A restaurant in downtown Orlando, a retail shop on Park Avenue in Winter Park, or a contracting business based in Lake Mary that took a six-figure EIDL loan in 2020 or 2021 is not unusual. Businesses across Central Florida used this financing to survive a period nobody could have planned for, and carrying that balance today is not a sign of mismanagement. What has changed is the SBA's willingness to let that debt sit quietly. A business owner evaluating Subchapter V should know, going in, which portion of the EIDL balance is secured, whether a personal guaranty attaches above the $200,000 line, and how a denied PPP application will be classified alongside the rest of the unsecured debt. Those answers are usually available from the loan documents and the SBA's own servicing file well before a petition is ever filed.
Melissa Youngman, PA represents businesses in Chapter 11 and Subchapter V cases throughout the Middle District of Florida. For more on Subchapter V eligibility and timelines, see our cornerstone guide on What Is Subchapter V Bankruptcy.
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Melissa Youngman is licensed to practice law in the State of Florida and regularly represents debtors, creditors, and other parties in interest in the United States Bankruptcy Court for the Middle District of Florida. This blog addresses issues under federal bankruptcy law and Florida state law; the outcome of any specific matter depends on its particular facts and on statutes, rules, and case law that may have changed after the date of publication.
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