PPP Loan and Bankruptcy -- Can You Discharge PPP Debt?

PPP Loans and Bankruptcy

Paycheck Protection Program (PPP) and EIDL loans present unique bankruptcy issues:

• Forgiven PPP loans: If your PPP loan was forgiven, there is no debt to discharge. The forgiveness is not treated as income for bankruptcy means test purposes.
• Unforgiven PPP loans: If your PPP loan was not forgiven (due to misuse or failure to apply for forgiveness), the SBA holds a claim. This is an unsecured claim in bankruptcy and may be dischargeable.
• EIDL loans: Economic Injury Disaster Loans are secured by a blanket UCC lien on business assets. In personal bankruptcy of a sole proprietor, the EIDL may be treated as a secured claim up to the value of collateral.
• Fraud concerns: If you obtained a PPP or EIDL loan through fraud (false representations on the application), the debt may be nondischargeable under Section 523(a)(2) and you may face criminal liability.