Section 553-Setoff: by Harold D. Israel and Mindy D. Cohn

SECTION 553—SETOFF
By Harold D. Israel and Mindy D. Cohn*

I. INTRODUCTION
II. MUTUALITY
A. MUTUALITY OF PARTIES
B. MUTUALITY IN TIME
III. MISCELLANEOUS ISSUES
A. EFFECT OF THE AUTOMATIC STAY
B. DEBTS MUST BE ENFORCEABLE
C. PRIORITY BETWEEN A SETOFF CLAIM AND A SECURED
CLAIM
D. IMPROVEMENT OF POSITION
E. EFFECT OF CONFIRMATION
F. EQUITABLE CONSIDERATIONS
G. WAIVER
H. APPLICATION OF NONBANKRUPTCY LAW
I. PRIORITY BETWEEN A DEBTOR’S EXEMPTION AND A
CREDITOR’S SETOFF RIGHT
I. INTRODUCTION
A setoff is the cancellation of cross demands between two parties. The
term is used to cover both judicially supervised setoffs and the automatic
extinction of cross demands. Section 553 of the Bankruptcy Code sets
limits on prepetition setoffs. Basically, section 553 provides that the right
of setoff is not affected by the filing of a bankruptcy petition if mutual
debts existed between the parties before the commencement of the case.
However, the right of setoff is not available if one debt was obtained prior
to commencement of the bankruptcy case and the other debt was
obtained after the commencement of the bankruptcy case. In that situa-
tion, there is no mutuality of debts. Additionally, section 553 provides
that there will be no right of setoff where (1) a creditor’s claim is disal-
lowed; (2) the creditor’s claim against the debtor was obtained within 90
days of commencing the case and while the debtor was insolvent; or (3)
*Mr. Israel is counsel with the law firm of Kaye Scholer LLC, in Chicago, Illinois. Ms.
Cohn is an associate with the law firm of Winston & Strawn LLP, in Chicago, Illinois.
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ANNUAL SURVEY OF BANKRUPTCY LAW
the creditor’s claim was obtained within 90 days of commencing the

bankruptcy case while the debtor was insolvent and for the purpose of
acquiring a right of offset.1
II. MUTUALITY
A. MUTUALITY OF PARTIES
Under section 553, only mutual debts can be offset.2 The general rule is
that mutuality is satisfied when the offsetting obligations are held by the
same parties in the same capacity.3 A court usually will not permit setoff
of obligations between the same parties if one obligation is held in a
party’s capacity as an agent or a trustee, and the other party’s obligation
is held in an individual capacity.4 In UAL, a bank and a state develop-
ment agency were parties to a trust agreement whereby the state agency
issued special facilities revenue bonds to finance improvements at an air-
port.5 The state agency deposited the proceeds from the sale of the
bonds into a construction fund which: (i) was pledged to repay the inter-
est and principal on the bonds; and (ii) was designed to reimburse the
debtor for its costs in constructing airport improvements.6 The state
agency and the debtor entered into a payment agreement whereby the
debtor agreed to make principal and interest payments on the bonds.7 In
order to obtain disbursements from the construction fund, the debtor
was required to submit a request to the bank for disbursement.8
Prior to the petition date, the bank did not honor one of the debtor’s
requests for a disbursement.9 After the debtor filed a voluntary petition
for relief under chapter 11 of the Bankruptcy Code, the bank refused to
honor another request for disbursement.10 The debtor filed an adversary
complaint against the bank seeking turnover of the funds requested.11
The debtor and the bank filed cross-motions for summary judgment.12
The bank contended, inter alia, that its obligation to pay disbursements
to the debtor was subject to the bank’s right of setoff against the debtor’s
obligation to make payments on the bonds.13 The debtor disagreed argu-
ing that the obligations were not mutual because the bank’s obligation to
the debtor was a trust obligation and the debtor’s obligation to the bank
was a contractual one.14
The bankruptcy court concluded that the bank’s obligation to the
debtor and the debtor’s obligation to the bank were mutual obligations
because the construction fund was not a trust account.15 The court,
when rejecting the debtor’s argument, explained that the debtor simply
had a legal claim to the construction fund just as the bank had a legal
claim against the debtor for payment on the bonds.16 As a result, the
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court authorized the bank to exercise setoff and entered summary judg-
ment in favor of the bank with respect to the setoff issue.17
Mutuality usually does not exist where a debtor owes an obligation to a
creditor and the creditor’s parent corporation owes an obligation to the
debtor.18 However, in Bridge Information Systems, a court held that setoff
was permissible where the creditor’s parent corporation was the
debtor’s obligor in name only and the parent’s subsidiary was the true
obligor.19 In Bridge Information Systems, the debtor agreed to purchase
equipment from the creditor pursuant to a contract with the creditor.20
In addition to the written agreement, the creditor orally agreed to pur-
chase certain used equipment from the debtor.21 The original purchase
orders listed the creditor as the purchaser.22 Subsequently, the parties
decided to change the purchaser’s name on the purchase orders from
that of the creditor to that of the creditor’s parent corporation in order to
circumvent a restriction contained in the original written agreement.23
Even though the purchase orders named the creditor’s parent corpora-
tion, the invoices relating to such purchase orders were sent to and paid
by the creditor.24
When the debtor filed a voluntary petition for relief under chapter 11 of
the Bankruptcy Code, the debtor owed the creditor approximately $1 mil-
lion under the agreement and the creditor owed the debtor approximately
$700,000 under outstanding purchase orders.25 The creditor filed a motion
for relief from the automatic stay to offset the obligations and the debtor
objected on the ground that the debts to be offset were not between the
same parties.26 The debtor argued that the debts did not meet the mutual-
ity requirement set forth in section 553 of the Bankruptcy Code.27 Subse-
quently, the creditor converted its motion into an adversary complaint to
determine the extent of the creditor’s secured claim.28
The court found that based on the evidence adduced at trial: (i) the
creditor’s parent never agreed to be obligated under any of the purchase
orders; and (ii) the debtor and the creditor both understood that the true
obligor under the purchase orders was the creditor, not the creditor’s
parent.29 As a result, the court concluded that the mutuality requirement
was satisfied for the purposes of section 553 of the Bankruptcy Code, and
the creditor was entitled to offset its obligation to the debtor.30
In contrast, in Winstar, a court refused to permit setoff where a debtor
owed an obligation in its individual capacity and a creditor owed an obli-
gation in its agency capacity.31 In Winstar, a creditor requested relief from
the automatic stay to offset a sales tax refund that it received from the
Commonwealth of Virginia (“Virginia”) (which refund was owed to the
debtor) against the creditor’s prepetition claim.32 The bankruptcy court
denied the motion on the ground that the debts lacked mutuality because
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the creditor received the refund from Virginia and held the refund in an
agency capacity for the benefit of the debtor.33 The creditor appealed.34
On appeal, the district court affirmed the decision of the bankruptcy
court and held that the creditor received the tax refund in an agency
capacity and not in its individual capacity.35 In its analysis, the district
court relied on a Virginia statute which provides that “all sums collected
by a dealer . . . shall be deemed to be held in trust for [Virginia].”36
Because the creditor held the funds in trust in its capacity as an agent of
the debtor and Virginia, the court concluded that the obligations were
not mutual.37
B. MUTUALITY IN TIME
Setoff is permitted pursuant to section 553 if both the claim and the debt
to be offset arose prepetition.38 A debt arises when all transactions neces-
sary for liability occur.39 Generally, when one or both of the debts arise
postpetition, setoff will not be permitted.40 In Myers, a court refused to
permit setoff where one of the debts to be offset arose postpetition.41 The
debtors in Myers were family farmers who obtained loans from the Farm
Service Agency (the “FSA”).42 The FSA loans were collateralized with
liens on the debtors’ real property.43 In addition, the debtors entered into a
contract with the Commodity Credit Corporation (another government
agency, the “CCC”) whereby the CCC agreed to make annual payments to
the debtors in exchange for the debtors’ compliance with certain land-use
restrictions.44 The debtors defaulted on their loan obligations to the FSA,
and the FSA initiated a foreclosure action.45
The debtors filed a voluntary petition for relief under chapter 12 of the
Bankruptcy Code, and the case was converted to a case under chapter
7.46 The debtors’ bankruptcy filing stayed the foreclosure action and ter-
minated the debtors’ contract with the CCC.47 Upon resolution of the
debtors’ chapter 7 case, the FSA obtained a judgment against them col-
lateralized by the debtors’ real property and proceeded with the foreclo-
sure action.48
Two days before the FSA’s foreclosure sale was scheduled to take
place, the debtors filed a second voluntary petition for relief.49 Again, the
foreclosure proceeding was stayed pursuant to section 362(a) of the
Bankruptcy Code.50 The debtors and the CCC entered into a stipulation
authorizing the debtors to assume the previously terminated CCC con-
tract and, as a result, the debtors became entitled to receive several
back-payments from the CCC.51 The FSA filed a motion for relief from
the automatic stay to offset payments from the CCC against the debtors’
obligation to repay the FSA loan.52 The bankruptcy court denied the
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FSA’s motion and held that the FSA did not have an independent right of
setoff.53 The Bankruptcy Appellate Panel (the “BAP”) affirmed.54 The
FSA appealed the decision to the Tenth Circuit Court of Appeals.55
The Tenth Circuit, affirming the lower courts on alternative grounds,
held that while the FSA had an independent right of setoff, it was not
entitled to exercise such right because the obligations were not mutual.56
The court found that the CCC’s obligation to the debtors arose postpeti-
tion when the debtors assumed the CCC contract.57 Relying on an
Eighth Circuit case, the court explained that the debt relating to the CCC
contract arose when the debt was “absolutely owing” or “when all trans-
actions necessary for liability occur[red], regardless of whether the claim
was contingent, unliquidated, or unmatured when the petition was
filed.”58 Because the FSA obligation arose prepetition and the CCC’s
obligation to make the payments to the FSA did not become “absolutely
owing” until the debtors assumed the CCC contract, the obligations to be
offset were not mutual.59 Therefore, the court held that setoff was inap-
propriate, affirmed the lower courts’ decisions, and remanded the case to
the bankruptcy court for further proceedings.60
III. MISCELLANEOUS ISSUES
A. EFFECT OF THE AUTOMATIC STAY

Section 362(a)(7) provides that a petition for relief under a chapter of the
Bankruptcy Code operates as a stay of the setoff of any debt owing to the
debtor that arose before the commencement of the bankruptcy case. 11
U.S.C.A. § 362(a)(7). Accordingly, a creditor must obtain relief from the
automatic stay prior to offsetting obligations pursuant to section 553.61 If a
creditor offsets a debt owed to a debtor in violation of the automatic stay, it
is within a court’s discretion to invalidate the offset or retroactively annul
the automatic stay to validate the offset.62 In Pleasant, a debtor filed a vol-
untary petition for relief under chapter 7 of the Bankruptcy Code and
received a discharge.63 Subsequently, the Internal Revenue Service (the
“IRS”) filed a motion for retroactive relief from the automatic stay to vali-
date the IRS’s previous setoff against the debtor’s prepetition tax refund.64
The IRS argued that it was entitled to relief because it did not receive
proper notice of the debtor’s chapter 7 case.65 The debtor opposed the
motion on the grounds that he relied on the tax refund to satisfy other
nondischargeable debts and the IRS’s violation of section 362 of the Bank-
ruptcy Code impeded his ability to obtain a fresh start.66
The court found that the IRS was entitled to offset the debts pursuant to
section 553(a) of the Bankruptcy Code and § 6402 of the Internal Revenue
Code.67 The court explained that the tax refund and the tax obligation
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were mutual prepetition debts because a tax refund for purposes of sec-
tion 553 arises on the last day of the tax year, and the debtor’s tax obliga-
tions arose during the tax year.68 The court then considered whether it
should grant retroactive relief from the automatic stay.69 The court deter-
mined that retroactive relief was appropriate because “the debtor’s right
to a fresh start does not include a right to bar the United States from exer-
cising its right of setoff.”70 Moreover, the court reasoned, the IRS’s viola-
tion of the stay was a result of the debtor’s failure to provide proper notice
of the debtor’s bankruptcy case.71 Therefore, the court granted the IRS’s
motion to annul the automatic stay and entered an order validating the
IRS’s previous offset against the debtor’s tax refund.72
B. DEBTS MUST BE ENFORCEABLE

In order to offset one debt against another, both debts must be valid
and enforceable.73 In Clark Retail, a bankruptcy court refused to permit
a debtor to offset a postpetition obligation against a postpetition claim
because the court determined that the debtor’s claim was not enforce-
able.74 The debtor in Clark Retail obtained court approval to employ a
real estate advisor (the “Advisor”) to solicit bids on certain of the debtor’s
real estate.75 One bidder (the “Bidder”) submitted a bid for 81 of the
debtor’s properties and paid the debtor an initial deposit in the amount
of $900,000.76 The debtor accepted the bid with respect to 16 of the prop-
erties (the “Accepted Properties”) and rejected the bid with respect to
the remaining 65 properties (the “Rejected Properties”).77 Under the
court-approved bidding procedures, in order to move forward with pur-
chasing a property, a bidder was required to pay the debtor a second
deposit on such property.78 When the Bidder failed to pay a second
deposit with respect to the Accepted Properties, the Advisor applied the
amount of the Bidder’s initial deposit that related to the Rejected Prop-
erties to satisfy the second deposit requirement with respect to the
Accepted Properties.79
After the amounts were applied, the Bidder requested that the debtor
return the portion of its initial deposit that related to the Rejected Prop-
erties.80 In addition, the Bidder advised the debtor that it was going to
default with respect to certain of the Accepted Properties.81 The debtor
declared the Bidder in default with respect to all of the Accepted Proper-
ties and returned the amount by which the total initial bid deposit on the
81 properties exceeded the initial and secondary deposits made on the
Accepted Properties.82
The Bidder filed an adversary complaint against the debtor seeking
turnover of the amount in excess of its initial deposits with respect to the
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Accepted Properties.83 The Bidder alleged that the Advisor wrongfully

applied the initial bid deposits for the Rejected Properties to satisfy the
second deposit requirement with respect to the Accepted Properties.84
In its answer, the debtor responded, inter alia, that the offset was permis-
sible pursuant to 11 U.S.C.A. § 553.85 Both parties filed cross-motions for
summary judgment.86
Entering judgment in favor of the Bidder, the court held that setoff was
not appropriate because the debtor’s claim against the Bidder for pay-
ment of the second deposit on the Accepted Properties was not enforce-
able under the court-approved bidding procedures.87 As a result, the
court entered summary judgment in favor of the Bidder, denied the
debtor’s cross-motion for summary judgment, and ordered the debtor to
return the Bidder’s initial deposit on the Rejected Properties.88
C. PRIORITY BETWEEN A SETOFF CLAIM AND A

SECURED CLAIM
The right of setoff elevates a creditor’s unsecured claim to secured sta-
tus to the extent that a debtor has a mutual prepetition claim against
such creditor.89 Under certain circumstances, such as those in the Iowa
Oil case described below, a creditor’s setoff claim may have priority over
a prior perfected security interest.90 In the Iowa Oil case, the debtor was
a franchisee of Citgo Petroleum Company (“Citgo”) and owned and oper-
ated several Citgo stores.91 Under the terms of the franchise agreement,
Citgo provided merchandise to the debtor on credit, collected credit card
receipts from the debtor’s sales, and was authorized to apply the pro-
ceeds of such credit card receipts to satisfy the debtor’s outstanding obli-
gations to Citgo.92
Prior to the date the debtor filed its petition for relief under chapter 11
of the Bankruptcy Code (the “Petition Date”), Citgo withheld from the
debtor approximately $500,000 in credit card receipts.93 Subsequent to
the Petition Date and without seeking relief from the automatic stay pro-
vision of the Bankruptcy Code, Citgo withheld from the debtor approxi-
mately $700,000 in credit card receipts.94 The debtor filed an adversary
complaint against Citgo seeking turnover of the credit card receipts.95
On cross-motions for summary judgment, the bankruptcy court entered
judgment in favor of the debtor and held that: (i) Citgo was not entitled to
offset prepetition credit card receipts against Citgo’s prepetition claims
because Citgo’s offset rights were subordinate to the debtor’s lender’s
security interest in the debtor’s accounts; and (ii) Citgo was not entitled
to offset postpetition credit card receipts against Citgo’s prepetition
claims because such debts lacked mutuality.96 Citgo appealed.97
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On appeal, the court considered whether Citgo was entitled to offset

prepetition credit card receipts against its prepetition claims.98 The
court explained that the priority between Citgo’s setoff right and the
lender’s security interest is governed by section 9-404 of the Uniform
Commercial Code (the “UCC”), which provides that a right to setoff or
other defense to payment prevails over a perfected security interest
unless the party seeking setoff has actual notice of the security interest
before the setoff right accrued.99 In addition, the court noted that Iowa
state courts have acknowledged that section 9-404 prevents an assignee
from obtaining greater rights than an assignor, even when the assign-
ment takes the form of a perfected security interest.100 The court deter-
mined that, notwithstanding the bank’s filing of a UCC financing
statement, there was no evidence that Citgo received “actual” notice of
the debtor’s assignment to the bank of its rights to the credit card
receipts collected by Citgo.101 The court stated that the filing of a UCC
financing statement merely provides “constructive notice,” not “actual
notice” as required under section 9-404.102 Based on UCC section 9-404
and the court’s conclusion that Citgo did not receive prior actual notice
of the lender’s security interest, the court concluded that Citgo was enti-
tled to offset the credit card receipts that accrued prior to the 90-day
period preceding the Petition Date.103
Next, the court considered whether Citgo was entitled to offset credit
card receipts collected during the 90-day period preceding the Petition
Date.104 The court noted that under section 553(a)(3) of the Bankruptcy
Code, a party is precluded from offsetting a debt where such debt was
incurred for the purpose of obtaining a setoff right against a debtor.105
Based on the facts in the record from the lower court, the district court
concluded that it was unable to determine Citgo’s intent in withholding
the debtor’s credit card receipts and remanded the issue for further pro-
ceedings in the bankruptcy court.106
D. IMPROVEMENT OF POSITION
Under section 553(b) of the Bankruptcy Code, a trustee may recover
portions of a prepetition setoff if the setoff occurred within the 90-day
period preceding the filing of a bankruptcy petition and the creditor
asserting the setoff right improved its position as a result of the setoff.107
For example, in Haynes, a court ruled that a trustee could recover a
bank’s offset against a debtor’s account to the extent of the amount the
bank improved its position within the 90 days preceding the filing of the
debtor’s bankruptcy case.108 The debtor in Haynes deposited funds into
her checking account and instructed the bank to apply the funds to sat-
isfy her obligation to repay a secured loan.109 The bank applied the funds
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in accordance with her instructions.110 Several days later, the bank

reversed the application and applied the funds to satisfy the debtor’s
unsecured obligations to the bank.111 The debtor filed a petition for relief
under chapter 7 of the Bankruptcy Code, and the chapter 7 trustee filed
an adversary complaint against the bank seeking, inter alia, to avoid the
bank’s offset against the debtor’s account pursuant to section 553(b) of
the Bankruptcy Code.112
The bank filed a motion for summary judgment contending that it was
entitled to offset the debtor’s deposit against the bank’s unsecured
claims pursuant to section 553.113 The court, entering judgment in favor
of the trustee, held that the bank’s setoff was avoidable pursuant to sec-
tion 553(b) of the Bankruptcy Code.114 Section 553(b) provides that a
trustee may recover the amount offset during the 90-day period preced-
ing the petition date to the extent of the amount the creditor improved
its position within such 90-day period.115 Therefore, the court concluded
that the bank’s offset was avoidable to the extent of the amount that the
bank improved its position between the 90th day preceding the petition
date and the date that the setoff occurred.116
Next the court considered whether the trustee was entitled to recover
such amount from the bank or whether the amount should be applied
per the debtor’s initial instruction (to satisfy the debtor’s mortgage and
thereby increase the debtor’s homestead exemption).117 Relying on a
case decided prior to the enactment of the Bankruptcy Code, the court
concluded that the trustee was entitled to recover the funds from the
bank.118 The court analogized that the trustee should be able to recover
the funds under section 553(b), notwithstanding the debtor’s claim to the
funds much in the same way a trustee may recover a preferential trans-
fer pursuant to section 547 of the Bankruptcy Code notwithstanding the
potential claims of the intended beneficiaries of such funds.119 As a
result, the court entered summary judgment in favor of the trustee and
ordered the bank to pay the trustee the amount by which it improved its
position during the 90-day preference period.120
In ITXS, a court ruled that a lessor’s application of a security deposit
within the 90-day preference period was not recoverable as a preference
pursuant to sections 547, 550, or 553(b) of the Bankruptcy Code.121 In
ITXS, a debtor filed an adversary complaint seeking, inter alia, to avoid a
lessor’s prepetition application of the debtor’s security deposit as a pref-
erential transfer of the debtor’s property.122 The lessor moved for entry
of partial summary judgment against the debtor with respect to the pref-
erence issue.123
Agreeing with the lessor, the court ruled that the offset did not consti-
tute an avoidable preference under either section 547 or section 553.124
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First, the court held the setoff was not avoidable pursuant to section
553(b) because the lessor did not improve his position within the 90 days
preceding the petition date as a result of such setoff.125 The court rea-
soned that a security deposit is akin to a security interest and necessarily
enables a lessor to receive as much through setoff as it would have
received had the setoff not occurred.126 Next, the court noted that “the
definition of the term “transfer” in section 101 [of the Bankruptcy Code]
intentionally omits [the term] ‘setoffs.’”127 The court therefore concluded
that the lessor’s prepetition setoff was not “a transfer of an interest of the
debtor in property” and did not constitute a preference within the mean-
ing of section 547.128 As a result, the court determined that the lessor’s
offset was appropriate and entered partial summary judgment in favor of
the lessor and against the debtor.129
E. EFFECT OF CONFIRMATION
There is a split among the circuit courts of appeals regarding whether a
creditor’s setoff right survives confirmation of a chapter 11 debtor’s plan of
reorganization.130 In Ronnie Dowdy, a bankruptcy court permitted the
Internal Revenue Service (the “IRS”) to offset a prepetition obligation
against a prepetition debt subsequent to confirmation of a chapter 11
debtor’s plan of reorganization.131 In Ronnie Dowdy, the IRS filed a post-
confirmation motion to offset a prepetition claim against the debtor’s
claim for a tax refund.132 In its proof of claim, the IRS indicated that its
claim was not subject to setoff.133 The debtor opposed the motion on the
grounds that: (i) the IRS’s preconfirmation conduct was inconsistent with
its setoff right; and (ii) the confirmed chapter 11 plan was res judicata.134
The court first determined that the IRS had a valid right of setoff pur-
suant to section 553 of the Bankruptcy Code. Noting a split of authority,
the court concluded that the confirmation of a chapter 11 plan does not
affect a creditor’s setoff right because section 553(a) “clearly provides
that, subject to the exceptions as enumerated, the provisions of ‘this
title,’ i.e., Title 11, which is the Bankruptcy Code, do not apply to set-
offs.”135 Next, the court determined that even though there was no res
judicata, the IRS could have waived its setoff right by intentionally relin-
quishing it.136 The court stated that the determinative issue was whether
the IRS had waived such right by not asserting the same in its proofs of
claim or filing an objection to the debtor’s plan of reorganization.137
Finding that it lacked sufficient evidence to determine whether a waiver
had occurred, the court requested that the parties present additional evi-
dence and scheduled an evidentiary hearing on the waiver issue.138
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F. EQUITABLE CONSIDERATIONS
Allowance of setoff pursuant to section 553 is within a court’s discre-
tion.139 A court may refuse to permit setoff even if the creditor meets the
applicable standard where a court finds that such party participated in ineq-
uitable conduct.140 For example, in National Hydro-Vac, a court refused to
permit setoff because the court found that the party seeking setoff had con-
verted certain of the debtor’s property.141 The debtor in National Hydro-Vac
requested that one of its vendors serve as a broker and sell certain of the
debtor’s used equipment on the debtor’s behalf.142 At the vendor’s request,
the debtor sent the equipment to the vendor for inspection.143 One of the
debtor’s officers testified that he believed the vendor was going to sell the
equipment to a third party and transfer the sale proceeds to the debtor.144
However, upon selling the equipment, the vendor applied the sale proceeds
to satisfy a portion of the debtor’s obligation to the vendor.145 Shortly there-
after, the debtor filed a voluntary petition for relief under chapter 11 of the
Bankruptcy Code and the case subsequently was converted to a case under
chapter 7 of the Bankruptcy Code.146
The chapter 7 trustee filed an adversary complaint against the vendor
demanding, inter alia, turnover of the sale proceeds on the ground that a
claim may not be offset against an obligation incurred as a result of a
creditor’s conversion of the debtor’s property.147 The bankruptcy court
agreed with the trustee.148 Relying on an Arkansas state court decision,
the court held that setoff is not permitted against a debtor’s claim for
damages for conversion.149 Next, the court determined that setoff should
not be permitted because the debts were not held in the same capacity:
the vendor owed an obligation to return property it held in trust as the
debtor’s agent, and the debtor owed the vendor payments in its capacity
as an account debtor.150 Finally, the court ruled that even if the vendor
could meet the requirements set forth in section 553, setoff was inappro-
priate because the vendor wrongfully retained the debtor’s property in
violation of the automatic stay provision of the Bankruptcy Code.151 The
court explained that by seizing the debtor’s property without a legal
right to do so, the vendor attempted to convert its unsecured claim into a
secured claim to the detriment of the debtor’s other unsecured credi-
tors.152 If the vendor was permitted to exercise setoff, the court rea-
soned, creditors would be encouraged to seize a debtor’s property
without process and then claim a right of setoff when sued for conver-
sion.153 As a result, the court held that the vendor was prohibited from
exercising setoff under the circumstances and ordered the vendor to
return the sale proceeds to the debtor’s estate.154
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In contrast, in Meyer Medical, the court dismissed a debtor’s argument

that a creditor should be prohibited from offsetting mutual debts due to
alleged inequitable conduct.155 The debtor in Meyer Medical, a physi-
cians group, entered into an agreement with a health maintenance orga-
nization (the “HMO”) pursuant to which the debtor agreed to provide
services to HMO enrollees in exchange for a set monthly prepayment.156
Under the agreement, the debtor was responsible for paying for services
rendered by third-party specialist physicians.157
When the debtor fell behind in its payments to third-party specialists,
the HMO and the debtor entered into a credit agreement whereby the
HMO loaned the debtor $2 million.158 When the debtor continued to miss
loan payments, the HMO agreed to modify the payment schedule in
exchange for the debtor’s acknowledgement that it owed the HMO $4.5
million.159 As of the date the debtor filed a voluntary petition for relief
under chapter 11 of the Bankruptcy Code, the HMO owed the debtor
$1.3 million for services rendered to HMO enrollees.160 The HMO moved
for relief from the automatic stay to offset its obligation to the debtor
against its claims against the debtor.161 The bankruptcy court granted
the motion and the district court affirmed.162 The debtor appealed to the
Seventh Circuit.163
On appeal, the debtor argued that setoff should not be permitted
because the debts were not mutual and the HMO had intentionally
incurred the loan obligation in order to create a right of setoff.164 After
determining that the obligations were mutual, the court considered the
debtor’s argument that setoff should be denied on equitable grounds.165
Dismissing the debtor’s argument, the court explained that “courts gen-
erally frown on denying setoff when [as in this case] a bank or other
creditor injects funds into a struggling entity as this would precipitate
bankruptcy.”166 In addition, the court noted that there was no factual
basis in the record from which the court could conclude that the HMO
acted inequitably.167 As a result, the Seventh Circuit affirmed the deci-
sions of the lower courts and granted the HMO’s motion for relief from
the automatic stay to effect setoff.168
G. WAIVER
A creditor may be deemed to have waived its setoff rights by its con-
duct in a bankruptcy case.169 In Peterson, a debtor unsuccessfully argued
that a creditor waived its setoff right where the creditor failed to indicate
its intent to offset its debt in its proof of claim.170 In Peterson, the debtors
filed a voluntary joint petition for relief under chapter 13 of the Bank-
ruptcy Code.171 The Internal Revenue Service (the “IRS”) filed a proof of
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claim against the debtors but did not indicate that the claim was subject
to setoff.172 Subsequently, the debtors filed their federal income tax
return which entitled them to a tax refund.173 The IRS filed a motion for
relief from the automatic stay to exercise setoff.174 The debtors conceded
that the IRS met each of the setoff requirements but opposed the motion
on the ground that the IRS waived its setoff right by failing to indicate a
right of setoff in its proof of claim.175
The bankruptcy court, relying on In re Custom Center, Inc.176, held that
the focus should not be on whether the creditor indicated it had a setoff
right on its proof if claim but rather on a creditor’s knowing waiver of its
right of setoff.177 Given that the IRS was unaware of the debtor’s entitle-
ment to receive a refund until the debtors filed their tax return, the court
concluded that none of the IRS’s actions could be construed to be a
waiver of its setoff rights.178 As a result, the court entered judgment in
favor of the IRS and granted the IRS’s motion for relief from the auto-
matic stay to effect setoff.179
H. APPLICATION OF NONBANKRUPTCY LAW

Section 553 does not provide an affirmative right of setoff.180 Rather,
section 553 preserves a creditor’s setoff rights that exist under nonbank-
ruptcy law.181 In Huff, a chapter 7 debtor included both an anticipated
$2,000 federal tax refund and a general unsecured claim in the amount of
approximately $36,000 held by the United States Department of Agricul-
ture (“USDA”) in her schedules of assets and liabilities.182 The debtor
filed a motion requesting that the court enter an order preventing the
government from exercising setoff.183
In its consideration of the setoff issue, the court first determined that the
obligations were mutual as they both arose prepetition between the same
parties standing in the same capacity.184 The court noted that both federal
agencies are considered to be a single entity for the purposes of setoff.185
Next, the court considered whether a federal setoff right existed under
nonbankruptcy law.186 The court concluded that although such a right
exists under 26 U.S.C.A. section 6402(d) (authorizing the Secretary of
Treasury to offset a tax refund against a taxpayer’s debt to another federal
agency), the federal government was not entitled to exercise such right
because it failed to comply with the procedural requirements of the stat-
ute.187 As a result, the court granted the debtor’s request for relief, held
that the federal government was not entitled to offset the obligations, and
ordered the U.S. to pay the debtor her tax refund.188
1007
I. PRIORITY BETWEEN A DEBTOR’S EXEMPTION AND A

CREDITOR’S SETOFF RIGHT
There is a split in authority regarding whether a debtor’s exemptions
prevail over a creditor’s setoff right.189 The Tarbuck court, following the
line of authority that holds section 522 has priority over section 553, held
that a bank’s setoff right was subject to a debtor’s exemption.190 In Tar-
buck, a bank obtained a judgment against a debtor with respect to a loan
default.191 Subsequently, the debtor filed a voluntary petition for relief
under chapter 11 of the Bankruptcy Code.192 The bank was granted
relief from the automatic stay to exercise its rights with respect to the
bank’s security interest in the debtor’s real property.193 The bank sold
the debtor’s real property and alleged a deficiency claim against the
debtor in the amount of approximately $75,000.194 The bank filed a
motion seeking relief from the automatic stay to offset the deficiency
claim against amounts in the debtor’s deposit account at the bank.195
The court granted the motion but stayed the effect of the order to afford
the debtor an opportunity to claim an exemption on the account.196
The debtor then amended his schedules of assets and liabilities to
include an exemption in the deposit account pursuant to section
522(d)(5) of the Bankruptcy Code.197 The bank objected to the amend-
ment on the ground that the bank’s setoff right has priority over the
debtor’s exemption.198
The court entered judgment in favor of the debtor.199 The court first
considered federal cases interpreting section 522(c) of the Bankruptcy
Code, which provides that exempt property is not subject to prepetition
debt unless the debts falls within specified categories.200 Next, the court
considered state law regarding a debtor’s exemptions and determined
that a debtor’s monetary exemption is inviolate under state law except
with respect to real property in a foreclosure proceeding.201 As a result,
the court concluded that section 522(c) prevails over a creditor’s setoff
rights.202 The court therefore overruled the bank’s objection to the
debtor’s exemption and held that the bank could not offset its claim
against the exemption but could offset its claim against the funds in the
account in excess of the debtor’s exemption.203
1. 11 U.S.C.A. section 553 provides as follows:

(a) Except as otherwise provided in this section and in sections 362 and 363 of this
title, this title does not affect any right of a creditor to offset a mutual debt
owing by such creditor to the debtor that arose before the commencement of
the case under this title against a claim of such creditor against the debtor that
arose before the commencement of the case, except to the extent that—
(1) the claim of such creditor against the debtor is disallowed;
1008
(2) such claim was transferred, by an entity other than the debtor, to such
creditor—
(A) after the commencement of the case; or
(B)(i) after 90 days before the date of the filing of the petition; and
(ii) while the debtor was insolvent; or
(3) the debt owed to the debtor by such creditor was incurred by such
creditor—
(A) after 90 days before the date of the filing of the petition;
(B) while the debtor was insolvent; and
(C) for the purpose of obtaining a right of setoff against the debtor.
(b)(1) Except with respect to a setoff of a kind described in section 362(b)(6),
362(b)(7), 362(b)(14), 365(h), 546(h), or 365(i)(2) of this title, if a creditor offsets
a mutual debt owing to the debtor against a claim against the debtor on or
within 90 days before the date of the filing of the petition, then the trustee
may recover from such creditor the amount so offset to the extent that any
insufficiency on the date of such setoff is less than the insufficiency on the
later of—
(A) 90 days before the date of the filing of the petition; and
(B) the first date during the 90 days immediately preceding the date
of the filing of the petition on which there is an insufficiency.
(2) In this subsection “insufficiency” means amount, if any, by which a claim
against the debtor exceeds a mutual debt owing to the debtor by the holder of
such claim.
(c) For the purposes of this section, the debtor is presumed to have been insol-
vent on and during the 90 days immediately preceding the date of the filing
of the petition.
2. In re UAL Corp., 2004 WL 3080341 (Bankr. N.D. Ill. 2004).
4. See, e.g., In re Knedlik, 192 B.R. 559, 561 (Bankr. D. Kan. 1995) (holding that where
liability of party claiming right of setoff arises from fiduciary duty or is in nature of trust,
requisite mutuality of debts or credits does not exist).
18. See, e.g., In re Enron Corp., 2003 WL 1889040 (Bankr. S.D. N.Y. 2003) (refusing to
permit setoff where the obligation was owed to a different debtor affiliate than the debtor
affiliate against whom the creditor asserted a claim).
1009
19. In re Bridge Information Systems, Inc., 314 B.R. 421, 52 Collier Bankr. Cas. 2d (MB)
1218 (Bankr. E.D. Mo. 2004).
20. In re Bridge Information Systems, Inc., 314 B.R. 421, 425, 52 Collier Bankr. Cas. 2d
(MB) 1218 (Bankr. E.D. Mo. 2004).
(MB) 1218 (Bankr. E.D. Mo. 2004).
(MB) 1218 (Bankr. E.D. Mo. 2004).
(MB) 1218 (Bankr. E.D. Mo. 2004).
(MB) 1218 (Bankr. E.D. Mo. 2004).
(MB) 1218 (Bankr. E.D. Mo. 2004).
(MB) 1218 (Bankr. E.D. Mo. 2004).
(MB) 1218 (Bankr. E.D. Mo. 2004).
(MB) 1218 (Bankr. E.D. Mo. 2004).
(MB) 1218 (Bankr. E.D. Mo. 2004).
(MB) 1218 (Bankr. E.D. Mo. 2004).
31. In re Winstar Communications, 315 B.R. 660, 663-664 (D. Del. 2004).
32. In re Winstar Communications, 315 B.R. 660, 661 (D. Del. 2004).
35. In re Winstar Communications, 315 B.R. 660, 663 (D. Del. 2004)
38. In re Myers, 362 F.3d 667, 672, 42 Bankr. Ct. Dec. (CRR) 232, Bankr. L. Rep. (CCH) P
80072 (10th Cir. 2004); see also 11 U.S.C.A. §553(a).
80072 (10th Cir. 2004).
80072 (10th Cir. 2004). See also In re Schafer, 315 B.R. 765, 770 (Bankr. D. Colo. 2004) (setoff
is limited to mutual prepetition debts); In re Georgetown Steel Co., LLC, 318 B.R. 313, 328
(Bankr. D. S.C. 2004) (setoff of a prepetition claim against a postpetition debt is not permit-
ted). But see In re Davidson Lumber Sales, Inc., 66 F.3d 1560, 1569, 27 Bankr. Ct. Dec.
(CRR) 1127, 34 Collier Bankr. Cas. 2d (MB) 338, Bankr. L. Rep. (CCH) P 76675, 27 U.C.C.
Rep. Serv. 2d 1072 (10th Cir. 1995) (noting that courts generally recognize that in appropri-
ate circumstances mutual postpetition debts may be offset).
80072 (10th Cir. 2004).
80072 (10th Cir. 2004).
1010
80072 (10th Cir. 2004).
44. In re Myers, 362 F.3d 667, 670-671, 42 Bankr. Ct. Dec. (CRR) 232, Bankr. L. Rep.
(CCH) P 80072 (10th Cir. 2004).
80072 (10th Cir. 2004).
80072 (10th Cir. 2004).
80072 (10th Cir. 2004).
80072 (10th Cir. 2004).
80072 (10th Cir. 2004).
50. In re Myers, 362 F.3d 667, 671-672, 42 Bankr. Ct. Dec. (CRR) 232, Bankr. L. Rep.
(CCH) P 80072 (10th Cir. 2004).
80072 (10th Cir. 2004).
80072 (10th Cir. 2004).
80072 (10th Cir. 2004).
80072 (10th Cir. 2004).
80072 (10th Cir. 2004).
80072 (10th Cir. 2004).
80072 (10th Cir. 2004).
80072 (10th Cir. 2004) (quoting U.S. Through Agr. Stabilization and Conservation Service v.
Gerth, 991 F.2d 1428, 1433, 24 Bankr. Ct. Dec. (CRR) 304, 29 Collier Bankr. Cas. 2d (MB) 23,
Bankr. L. Rep. (CCH) P 75230 (8th Cir. 1993)).
80072 (10th Cir. 2004).
80072 (10th Cir. 2004).
61. In re Pleasant, 320 B.R. 889, 894, 2005-1 U.S. Tax Cas. (CCH) P 50179, 95 A.F.T.R.2d
2005-495 (Bankr. N.D. Ill. 2004).
2005-495 (Bankr. N.D. Ill. 2004).
2005-495 (Bankr. N.D. Ill. 2004).
2005-495 (Bankr. N.D. Ill. 2004).
2005-495 (Bankr. N.D. Ill. 2004).
1011
2005-495 (Bankr. N.D. Ill. 2004).
67. In re Pleasant, 320 B.R. 889, 891-892, 2005-1 U.S. Tax Cas. (CCH) P 50179, 95
A.F.T.R.2d 2005-495 (Bankr. N.D. Ill. 2004).
2005-495 (Bankr. N.D. Ill. 2004).
2005-495 (Bankr. N.D. Ill. 2004).
2005-495 (Bankr. N.D. Ill. 2004) (quoting In re Breder, 199 B.R. 207, 210, 77 A.F.T.R.2d 96-
2394 (Bankr. S.D. Fla. 1996), on reconsideration in part, 78 A.F.T.R.2d 96-5785, 1996 WL
621999 (Bankr. S.D. Fla. 1996)).
2005-495 (Bankr. N.D. Ill. 2004).
2005-495 (Bankr. N.D. Ill. 2004)
73. See In re Northeast Enter., Inc., 318 BR 625, 630 (Bankr. E.D. Pa. 2005) (in order to
effect a setoff, both debts must be valid debts).
74. Super Stop Petroleum, Inc. v. Clark Retail Enter., Inc. (In re Clark Retail Enter.,
Inc.), 308 BR 869, 897 (Bankr. N.D. Ill. 2004).
Inc.), 308 BR 869, 882-883 (Bankr. N.D. Ill. 2004)
1012
89. See In re Communication Dynamics, Inc., 300 B.R. 220, 223, 42 Bankr. Ct. Dec. (CRR)
9, 52 U.C.C. Rep. Serv. 2d 261 (Bankr. D. Del. 2003).
90. In re Iowa Oil Co., 55 U.C.C. Rep. Serv. 2d 48 (N.D. Iowa 2004).
102. In re Iowa Oil Co., 55 U.C.C. Rep. Serv. 2d 48 n. 2 (N.D. Iowa 2004).
105. In re Iowa Oil Co., 55 U.C.C. Rep. Serv. 2d 48 (N.D. Iowa 2004);see also In re Coast
Grain Co., 317 B.R. 796, 806, 44 Bankr. Ct. Dec. (CRR) 21 (Bankr. E.D. Cal. 2004) (where
creditor creates an obligation for specific purpose of exercising setoff and such obligation
arose within 90 days of the debtor’s petition date, setoff is not permitted).
107. 11 U.S.C.A. §553(b).
108. In re Haynes, 309 B.R. 577, 581, 43 Bankr. Ct. Dec. (CRR) 32, 52 Collier Bankr. Cas. 2d
(MB) 185 (Bankr. D. Ariz. 2004).
(MB) 185 (Bankr. D. Ariz. 2004).
(MB) 185 (Bankr. D. Ariz. 2004).
(MB) 185 (Bankr. D. Ariz. 2004).
(MB) 185 (Bankr. D. Ariz. 2004).
(MB) 185 (Bankr. D. Ariz. 2004).
(MB) 185 (Bankr. D. Ariz. 2004).
(MB) 185 (Bankr. D. Ariz. 2004).
(MB) 185 (Bankr. D. Ariz. 2004).
117. In re Haynes, 309 B.R. 577, 580-581, 43 Bankr. Ct. Dec. (CRR) 32, 52 Collier Bankr.
Cas. 2d (MB) 185 (Bankr. D. Ariz. 2004).
(MB) 185 (Bankr. D. Ariz. 2004).
(MB) 185 (Bankr. D. Ariz. 2004).
1013
120. In re Haynes, 309 B.R. 577, 584-585, 43 Bankr. Ct. Dec. (CRR) 32, 52 Collier Bankr.
Cas. 2d (MB) 185 (Bankr. D. Ariz. 2004).
121. In re ITXS, Inc., 318 B.R. 85, 88, 44 Bankr. Ct. Dec. (CRR) 6 (Bankr. W.D. Pa. 2004).
127. In re ITXS, Inc., 318 B.R. 85, 88-89, 44 Bankr. Ct. Dec. (CRR) 6 (Bankr. W.D. Pa. 2004)
(quoting Lawrence P. King, 5 Collier on Bankruptcy ¶ 553.09[1] at 553-87).
128. In re ITXS, Inc., 318 B.R. 85, 88-89, 44 Bankr. Ct. Dec. (CRR) 6 (Bankr. W.D. Pa. 2004).
130. See e.g., In re De Laurentiis Entertainment Group Inc., 963 F.2d 1269, 1276-77, 22
Bankr. Ct. Dec. (CRR) 1518, 26 Collier Bankr. Cas. 2d (MB) 1435, Bankr. L. Rep. (CCH) P
74569 (9th Cir. 1992) (holding that section 553 takes priority over section 1141 of the Bank-
ruptcy Code); In re Davidovich, 901 F.2d 1533, 1539, Bankr. L. Rep. (CCH) P 73372 (10th Cir.
1990) (same); In re Bare, 284 B.R. 870, 874, 40 Bankr. Ct. Dec. (CRR) 119, 49 Collier Bankr.
Cas. 2d (MB) 1142, 2003-1 U.S. Tax Cas. (CCH) P 50145, 90 A.F.T.R.2d 2002-7282 (Bankr.
N.D. Ill. 2002) (agreeing with the De Laurentis court but acknowledging split in authority).
In re Continental Airlines, 134 F.3d 536, 541, 32 Bankr. Ct. Dec. (CRR) 49, 30 Collier Bankr.
Cas. 2d (MB) 391, Bankr. L. Rep. (CCH) P 77614 (3d Cir. 1998), as amended, (Mar. 23, 1998)
(setoff is not permissible post-confirmation); In re Twins, Inc., 318 B.R. 90, 95 (Bankr. D.
S.C. 2004) (same); Daewoo Intern. (America) Corp. Creditor Trust v. SSTS America Corp.,
2003 WL 21355214 (S.D. N.Y. 2003) (same); In re Lykes Bros. S.S. Co., Inc., 217 B.R. 304, 310,
39 Collier Bankr. Cas. 2d (MB) 547 (Bankr. M.D. Fla. 1997) (same).
131. In re Ronnie Dowdy, Inc., 314 B.R. 182, 188, 94 A.F.T.R.2d 2004-5562 (Bankr. E.D. Ark.
2004).
2004).
2004).
2004).
2004) (quoting 11 U.S.C.A. § 553(a)).
2004).
2004).
2004).
139. In re Furr’s Supermarkets, Inc., 320 B.R. 1, 14 (Bankr. D. N.M. 2004) (setoff not per-
mitted because, inter alia, the policy of equitable distribution of estate assets to creditors
outweighed a single creditor’s right to offset a claim against a postpetition obligation); but
see Meyer Medical Physicians Group, Ltd. v. Health Care Service Corp., 385 F.3d 1039,
1041, 43 Bankr. Ct. Dec. (CRR) 184, Bankr. L. Rep. (CCH) P 80166 (7th Cir. 2004) (allowing
setoff where debtor failed to establish that creditor had participate in inequitable conduct)
(see text accompanying notes 155-168); In re Bridge Information Systems, Inc., 314 B.R.
421, 430-431, 52 Collier Bankr. Cas. 2d (MB) 1218 (Bankr. E.D. Mo. 2004) (refusing to grant a
1014
debtor’s request that setoff be denied on equitable grounds) (see text accompanying notes
19-30).
140. In re National Hydro-Vac Indus. Services, L.L.C., 314 B.R. 753, 766 (Bankr. E.D. Ark.
2004).
2004).
2004).
2004).
2004).
2004).
2004).
2004).
2004).
2004) (citing Ouachita Valley Refining Co. v. Webster, 178 Ark. 845, 12 S.W.2d 779 (1929)).
2004)
2004).
2004).
2004).
2004).
155. Meyer Medical Physicians Group, Ltd. v. Health Care Service Corp., 385 F.3d 1039,
1042, 43 Bankr. Ct. Dec. (CRR) 184, Bankr. L. Rep. (CCH) P 80166 (7th Cir. 2004).
1015
1042, 43 Bankr. Ct. Dec. (CRR) 184, Bankr. L. Rep. (CCH) P 80166 (7th Cir. 2004). (quoting
Meyer Medical Physicians Group, Ltd. v. Health Care Service Corp., 2003 WL 21960350
(N.D. Ill. 2003), aff’d, 385 F.3d 1039, 43 Bankr. Ct. Dec. (CRR) 184, Bankr. L. Rep. (CCH) P
80166 (7th Cir. 2004) (internal citation omitted)).
169. See In re Calore Exp. Co., Inc., 288 F.3d 22, 41, 48 Collier Bankr. Cas. 2d (MB) 1017, 47
U.C.C. Rep. Serv. 2d 759, 89 A.F.T.R.2d 2002-2290 (1st Cir. 2002) (government’s statement
that claim was not subject to offset in attachment to proof of claim constituted waiver of
setoff right).
170. In re Peterson, 93 A.F.T.R.2d 2004-2812, 2004 WL 1397575 (Bankr. M.D. Ga. 2004).
176. In re Custom Center, Inc., 163 B.R. 309, 316-17, 25 Bankr. Ct. Dec. (CRR) 302, 94-1
U.S. Tax Cas. (CCH) P 50199, 73 A.F.T.R.2d 94-1280 (Bankr. E.D. Tenn. 1994).
180. In re Huff, 317 B.R. 679, 681, 94 A.F.T.R.2d 2004-7163 (Bankr. W.D. Pa. 2004).
187. In re Huff, 317 B.R. 679, 683-684, 94 A.F.T.R.2d 2004-7163 (Bankr. W.D. Pa. 2004) (find-
ing that the government failed to comply with the procedural requirements set forth in 31
U.S.C.A. § 3720A).
189. See Pittsburgh Nat. Bank v. U.S., 657 F.2d 36, 81-2 U.S. Tax Cas. (CCH) P 9626, 31
U.C.C. Rep. Serv. 1217, 48 A.F.T.R.2d 81-5785 (3d Cir. 1981) (section 553 prevails over section
522); In re Allen, 266 BR 713, 715 (Bankr. N.D. Iowa 2001) (acknowledges split in authority
and holds that a creditor’s right to setoff under section 553 prevails over debtor’s right to
exempt property); but see In re Jones, 230 B.R. 875, 41 Collier Bankr. Cas. 2d (MB) 1270, 99-
1016
1 U.S. Tax Cas. (CCH) P 50366, 83 A.F.T.R.2d 99-1893 (M.D. Ala. 1999) (holds that a debtor’s
rights under section 522 take precedence over a creditor’s rights under section 553).
190. In re Tarbuck, 318 B.R. 78, 82 (Bankr. W.D. Pa. 2004).
1017

Section 553-Setoff: by Harold D. Israel and Mindy D. Cohn

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SECTION 553—SETOFF

By Harold D. Israel and Mindy D. Cohn*

the creditor’s claim was obtained within 90 days of commencing the

III. MISCELLANEOUS ISSUES

A. EFFECT OF THE AUTOMATIC STAY

B. DEBTS MUST BE ENFORCEABLE

Accepted Properties.83 The Bidder alleged that the Advisor wrongfully

C. PRIORITY BETWEEN A SETOFF CLAIM AND A

On appeal, the court considered whether Citgo was entitled to offset

in accordance with her instructions.110 Several days later, the bank

In contrast, in Meyer Medical, the court dismissed a debtor’s argument

H. APPLICATION OF NONBANKRUPTCY LAW

I. PRIORITY BETWEEN A DEBTOR’S EXEMPTION AND A

1. 11 U.S.C.A. section 553 provides as follows:

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