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Bankruptcy | Case Law | Setoff Recoupment
SETOFF & RECOUPMENT
In re Gould, 401 B.R. 415 (9th Cir. BAP 2009)
IRS had a valid right of setoff under 11 U.S.C. § 553 and IRC § 6402(a) as to chapter 13
debtors’ tax refunds, even though the debtor claimed them as exempt and no objection to the
exemption was filed. Bankruptcy court should have granted the IRS relief from the automatic stay
for cause to allow it to exercise its setoff rights.
In re Straightline Investments, Inc,. 525 F.3d 870 (9th Cir. 2008)
Postpetition transfer by debtor of accounts receivable to a factor without bankruptcy court
approval were avoidable under § 549(a). This is true regardless of whether they diminished the
estate, the court declining to extend the diminution of the estate doctrine of § § 547 and 548 to §
549. They were not sales in the ordinary course of business, since they failed to meet both the
vertical and horizontal dimension tests of § 363(c).The earmarking doctrine did not apply, because
the money received by the debtor was not designated for a specific creditor. Recoupment did not
apply, because it is an equitable doctrine, and the factor engaged in inequitable conduct.
In re Wade Cook Financial Corp., 375 B.R. 580 (9th Cir. BAP 2007)
Section 553 governs the IRS’s right to setoff in bankruptcy, not the Internal Revenue Code.
Whether the obligation to remit a refund was a prepetition debt, and whether there was a mutuality
of debts, were genuine issues of material fact that required a remand.
In re Brown & Cole Stores, LLC, 375 B.R. 873 (9th Cir. BAP 2007)
Secured creditors are entitled to the administrative expense priority allowed by § 503(b)(9).
Because such claims arise prepetition, they may be subject to setoff under § 553(a) if all of the
requirement of the statute are met.
In re Madigan, 270 B.R. 749 (9th Cir. B.A.P. 2001)
Insurer's overpayment of prepetition disability benefits and insured's right to postpetition
benefits for separate disability were not logically related so as to entitle insurer to equitable
recoupment.
In re TLC Hospitals, Inc., 224 F.3d 1008 (9th Cir. 2000)
HHS's overpayments for TLC's nursing services in one fiscal year arise from the same
transaction as its underpayments to TLC in a later fiscal year, thus allowing them to recoup the
overpayments.
In re United Marine Shipbuilding, Inc., 146 F.3d 739 (9th Cir. 1998), amended and superseded on
denial of reh’g, 158 F.3d 997 (9th Cir. 1998)
Governments’ setoff rights are not waived when I.R.S. mistakenly disburses bankruptcy
debtor’s tax refund to debtor’s trustee
In re Luz Int’l, Ltd., 219 B.R. 837 (9th Cir. B.A.P. 1998)
Elements of a set-off under 553
1. Pre-petition debt owed to debtor
2. Debts are mutual and pre-petition and owing between same parties
3. Parties stand in same capacity
In re Bakersfield Westar Ambulance, Inc., 123 F.3d 1243 (9th Cir. 1997)
Bank improved position under § 553(b), thus setoff.
Newbery Corp. v. Fireman’s Fund Insur. Co., 95 F.3d 1392 (9th Cir. 1996)
Recoupment does not violate ratable distribution
In re HAL, Inc., 196 B.R. 159 (9th Cir. B.A.P. 1996), aff’d. 122 F.3d 851 (9th Cir. 1997)
Federal government agencies constitute single entity for purposes of mutuality requirement
of setoff except for agencies acting in distinct private capacity
In re Harmon, 188 B.R. 421 (9th Cir. B.A.P. 1995)
Excess temporary workers’ compensation payments may be deducted from debtor’s
permanent disability award under either recoupment or setoff
In re Cascade Roads, Inc., 34 F.3d 756 (9th Cir. 1994)
U.S. government’s right of setoff deemed due to its inequitable conduct, notwithstanding
setoff right found in 31 U.S.C. 3728
In re Newbery Corp., 145 B.R. 998 (9th Cir. B.A.P. 1992), op withdrawn 161 B.R. 999 (9th Cir.
B.A.P. 1994)
Claim for prepetition damages for abandoning work on a project and a claim for rental of
equipment postpetition arise out of the same transaction, this recoupment appropriate
In re De Laurentiis Entertainment Group, Inc., 963 F.2d 1269 (9th Cir. 1992), cert. denied, 506
U.S. 918 (1992)
Setoff available even after plan confirmed - 553 takes precedence over 1141.
In re Buckenmaier, 127 B.R. 233 (9th Cir. B.A.P. 1991)
Error to prohibit creditor’s setoff claim against discharged debtor
In re Holford, 896 F.2d 176 (5th Cir. 1990)
Recoupment not barred by automatic stay
In re Davidovich, 901 F.2d 1533 (10th Cir. 1990)
Setoff v. Recoupment
Lewis Industries v. Barham Constr. Inc., 878 F.2d 1230 (9th Cir. 1989)
Failure to raise setoff at time of assumption by debtor of executory contract = estoppel
In re Pieri, 86 B.R. 208 (9th Cir. B.A.P. 1988)
Creditor may assert setoff in cross-complaint against a debtor’s complaint seeking money
which would be exempt.