KServicing, the small-business loan service company more popularly known as Kabbage, has announced that it filed for Chapter 11 bankruptcy on Monday.
The filing for bankruptcy comes at the heels of news that it is under investigation by the U.S. Department of Justice (DOJ) under the False Claims Act.
The investigation centers around Paycheck Protection Program (PPP) loan approval practices.
KServicing Files Chapter 11 Bankruptcy Proceedings
In a statement, KServicing said it filed for bankruptcy to provide the company with the flexibility and protections to facilitate a gradual end of its operations and resolve issues with stakeholders and settle outstanding disputes.
KServicing has filed for Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware. The firm, formerly known as Kabbage, had processed more than $7 billion worth of Paycheck Protection Program (PPP) loans before the company’s technology and a portion of its team were acquired by American Express, leaving behind the holding company, KServicing, to administer the remaining $1.3 billion portfolio of COVID relief loans.
“The actions we take today are in line with KServicing’s mission to support PPP borrowers through their loan forgiveness process, provide loan processing services to partner banks, and wind down the Company’s existing loan portfolio,” said, Laquisha Milner, Chief Executive Officer.
KServicing has filed a number of customary first-day motions with the Bankruptcy Court. These include seeking authorization to continue operations while seeking relief in the Chapter 11 Cases to continue paying all active employees in the ordinary course. This relief includes all wages, compensation, and other benefits, including healthcare.
In May 2022, SBA’s Office of Inspector General (OIG) published a report on more than 70,000 loans totaling over $4.6 billion in potentially fraudulent PPP loans.
To clamp down on increasing cases of PPP fraud, the Biden Administration in March appointed a special prosecutor on PPP Fraud. These and other similar measures have helped in indicting more individuals and businesses to the more than 1,000 criminal cases and over 200 civil investigations across 1,800 individuals and entities involving billions of dollars in suspected fraud since May 2021.
What are the small businesses that have been denied the PPP loan forgiveness supposed to do? We have only 1 employee and qualified for $2500. We’ve provided all necessary information to Kabbage that proves we were eligible. We’ve appealed the denial of the forgiveness which took several hours of gathering paperwork and uploading it to the appeal site. Now Kabbage gets to file bankruptcy to protect themselves. They continue to send us statements requesting that we pay back the loan. Of course, this now accrues interest. We are also being threatened to be taken to collections. Had we known this was going to be such a struggle, we never would have applied. Yes, the $2500 helped to pay our employee, but this whole process wasn’t worth it. It’s like we drew the short straw. Our hometown bank provided the link to Kabbage, so we went with them. Very unfortunate for all of us who have been denied. We’ve contacted our Congressman, who has let their Small Business liason know, but we continue to hear nothing. Does anyone know what we should do? I absolutely do not want to pay this back when we qualified for it.