Franchise owner needs to file bankruptcy on SBA loan

I have a bankruptcy client that purchased an existing franchise last year using a SBA-type loan, 50% backed by the State. The bank never asked for copies of the franchise agreement and, it turns out, that there wasn’t one. The former owner sold the franchise b/c he was severely in debt and had not paid the franchise dues for years. The franchisor found out and shut the bankruptcy client down. Bankruptcy client has defaulted on the note (which is personally guaranteed). The State is refusing to back the loan since the bank did not obtain the necessary documentation (including the franchise agreement). No one can find the previous owner. The bankruptcy client wants to get out of the loan (of course) and thinks he should be able to since the bank never requested the franchise agreement. The bank is trying to collect. This is a common theme among borrowers. The bank lent money. The client agreed to repay the money. The bank was not the client’s partner and was not going to receive a percentage of the profits if the business made millions, only the contractual interest and repayment of the principal. The bank was not providing investment advice and was not providing legal advice on the investment. They only lent money. At best, the loan was not properly secured. The bank will take the loss on that if it can’t collect from the bankruptcy client. While bank certainly should have done its due diligence, it may have been taking the security on a FWIW basis. Maybe the bank was really underwriting the creditworthiness of the borrower. Lots of maybe’s here about why the bank acted as it did. If it has a security interest in a terminated franchise agreement, it is bad on the security. Maybe it was the personal guaranty that they were really counting on. Either way, filing bankruptcy is a nice way to get rid of all the liabilities all at once, and get a fresh start so that he can try something else in a few months.