U.S. Code » Title 11 » Chapter CHAPTER 5— CREDITORS, THE DEBTOR, AND THE ESTATE › Subchapter SUBCHAPTER III— THE ESTATE

11 U.S.C. § 553

Setoff

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(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;(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 (except for a setoff of a kind described in section 362(b)(6), 362(b)(7), 362(b)(17), 362(b)(27), 555, 556, 559, 560, or 561); 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 (except for a setoff of a kind described in section 362(b)(6), 362(b)(7), 362(b)(17), 362(b)(27), 555, 556, 559, 560, or 561).(b)(1) Except with respect to a setoff of a kind described in section 362(b)(6), 362(b)(7), 362(b)(17), 362(b)(27), 555, 556, 559, 560, 561, 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 insolvent on and during the 90 days immediately preceding the date of the filing of the petition.(Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2602; Pub. L. 98–353, title III, §§ 395, 467, July 10, 1984, 98 Stat. 365, 380; Pub. L. 101–311, title I, § 105, June 25, 1990, 104 Stat. 268; Pub. L. 103–394, title II, §§ 205(b), 222(b), title V, § 501(d)(19), Oct. 22, 1994, 108 Stat. 4123, 4129, 4146; Pub. L. 109–8, title IX, § 907(n), Apr. 20, 2005, 119 Stat. 181.)Historical and Revision Noteslegislative statements

Section 553 of the House amendment is derived from a similar provision contained in the Senate amendment, but is modified to clarify application of a two-point test with respect to setoffs.

senate report no. 95–989

This section preserves, with some changes, the right of setoff in bankruptcy cases now found in section 68 of the Bankruptcy Act [section 108 of former title 11]. One exception to the right is the automatic stay, discussed in connection with proposed 11 U.S.C. 362. Another is the right of the trustee to use property under section 363 that is subject to a right of setoff.

The section states that the right of setoff is unaffected by the bankruptcy code except to the extent that the creditor’s claim is disallowed, the creditor acquired (other than from the debtor) the claim during the 90 days preceding the case while the debtor was insolvent, the debt being offset was incurred for the purpose of obtaining a right of setoff, while the debtor was insolvent and during the 90-day prebankruptcy period, or the creditor improved his position in the 90-day period (similar to the improvement in position test found in the preference section 547(c)(5)). Only the last exception is an addition to current law.

As under section 547(f), the debtor is presumed to have been insolvent during the 90 days before the case.

Editorial NotesAmendments

2005—Subsec. (a)(2)(B)(ii). Pub. L. 109–8, § 907(n)(1), inserted “(except for a setoff of a kind described in section 362(b)(6), 362(b)(7), 362(b)(17), 362(b)(27), 555, 556, 559, 560, or 561)” before semicolon.

Subsec. (a)(3)(C). Pub. L. 109–8, § 907(n)(2), inserted “(except for a setoff of a kind described in section 362(b)(6), 362(b)(7), 362(b)(17), 362(b)(27), 555, 556, 559, 560, or 561)” before period.

Subsec. (b)(1). Pub. L. 109–8, § 907(n)(3), substituted “362(b)(17), 362(b)(27), 555, 556, 559, 560, 561,” for “362(b)(14),” in introductory provisions.

1994—Subsec. (a)(1). Pub. L. 103–394, § 501(d)(19)(A), struck out before semicolon at end “other than under section 502(b)(3) of this title”.

Subsec. (b)(1). Pub. L. 103–394, § 501(d)(19)(B), substituted “section 362(b)(14),” for “section 362(b)(14),,”.

Pub. L. 103–394, § 222(b), which directed the amendment of section 553(b)(1) by inserting “546(h),” after “365(h),” was executed by making the insertion in section 553(b)(1) of this title to reflect the probable intent of Congress.

Pub. L. 103–394, § 205(b), substituted “365(h)” for “365(h)(2)”.

1990—Subsec. (b)(1). Pub. L. 101–311 substituted “362(b)(7), 362(b)(14),” for “362(b)(7),”.

1984—Subsec. (b)(1). Pub. L. 98–353 inserted “, 362(b)(7),” after “362(b)(6)”, and substituted “, 365(h)(2), or 365(i)(2)” for “or 365(h)(1)”.

Statutory Notes and Related SubsidiariesEffective Date of 2005 Amendment

Amendment by Pub. L. 109–8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 of Pub. L. 109–8, set out as a note under section 101 of this title.

Effective Date of 1994 Amendment

Amendment by Pub. L. 103–394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103–394, set out as a note under section 101 of this title.

Effective Date of 1984 Amendment

Amendment by Pub. L. 98–353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98–353, set out as a note under section 101 of this title.

Notes of Decisions
Cited in 1,109 cases (49 in the last 5 years), 1980–2026 · leading case: Matthew Copley v. United States, 959 F.3d 118 (4th Cir. 2020).
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Matthew Copley v. United States, 959 F.3d 118 (4th Cir. 2020). · cites it 11× “The bankruptcy court recognized that the government had a statutory right to offset the Copleys’ tax overpayment, and further recognized that the bankruptcy code preserves creditors’ set-off rights under a separate provision, 11 U.S.C. § 553 (a). Nevertheless, the court…”
Tenderloin Health v. Bank of the West, 849 F.3d 1231 (9th Cir. 2017). · cites it 12× “56 prior to the filing of the Chapter 7 petition, CGI would have been entitled to a right of setoff under 11 U.S.C. § 553 (a).”). True, hypothetical setoff analyses, unlike preference actions, do not require that we assume a party will initiate an adversary proceeding.”
Lee v. Schweiker, 739 F.2d 870 (3rd Cir. 1984). · cites it 8× “The second involves the application of the limitation on setoffs contained in 11 U.S.C. § 553 (b), known as the “improvement in position test,” to the situation in which the SSA agrees to recover an overpayment by means of monthly deductions from a beneficiary’s benefit checks,…”
California Canners & Growers v. Military Distributors of Virginia, Inc. (In Re California Canners & Growers), 62 B.R. 18 (9th Cir. BAP 1986). · cites it 14× “Canners moved for summary judgment arguing that 11 U.S.C. § 553 (a) prohibited setoff of Distributors' prepetition claim against Canners' postpetition claim.”
Bankr. L. Rep. P 73,372 in Re Nathan Davidovich & Amy Jill Davidovich, Debtors. Nathan Davidovich & Christine Jobin, Tr. v. Charles Welton, 901 F.2d 1533 (10th Cir. 1990). · cites it 7× “In support of both requested offsets, Welton cited both the setoff provisions of 11 U.S.C. § 553 (1982 & Supp. Ill 1985) and the equitable doctrine of recoupment.”
In the Matter of United Sciences of Am., Inc., Debtor. Daniel J. Sherman v. First City Bank of Dallas, 893 F.2d 720 (1st Cir. 1990). · cites it 10× “GRADY JOLLY, Circuit Judge: In this bankruptcy appeal we must decide whether a bank obtains an impermissible set-off in violation of 11 U.S.C. § 553 (a) when it exercises its contractual right during the prohibitive period to debit “charge-backs” against the commercial account…”
Conoco, Inc. v. Styler, 82 F.3d 956 (10th Cir. 1996). · cites it 7× “Peterson raises two claims on appeal: (1) that the district court erred in reversing the bankruptcy court’s judgment, which held that Conoco was not entitled to recoupment, and (2) that the bankruptcy court properly determined that Conoco’s right of setoff under 11 U.S.C. § 553…”
Scott v. Majors, 1999 UT App 139 (Utah Ct. App. 1999). · cites it 13× “First, the trial court granted Scott’s motion for summary judgment, ruling that under 11 U.S.C. § 553 (1993) and the equitable doctrine of recoupment, Scott could offset the contract sales price of $37,500 against his costs, damages and attorney fees of $35,-563.”
Scherling v. Hellman Elec. Corp. (In Re Westchester Structures, Inc.), 181 B.R. 730 (Bankr. S.D.N.Y. 1995). · cites it 10× “Setoff Trustee maintains that even if these funds are held by Trustee in trust for HEC, Trustee, nevertheless, has the right to offset against that amount, sums due from HEC to Debtor and an amount due from HEC to T.”
Amerisourcebergen Corp. v. Dialysist West, Inc., 465 F.3d 946 (9th Cir. 2006). · cites it 2× “11 U.S.C. § 553 (2006). Section 553, however, does not create a right of setoff: “Rather, the section merely rec- ognizes and preserves setoff rights that exist under other applicable law.”
U.S. Aeroteam, Inc. v. Delphi Auto. Sys., LLC (In Re U.S. Aeroteam, Inc.), 327 B.R. 852 (Bankr. S.D. Ohio 2005). · cites it 8× “Finally, under Article 9 of the Uniform Commercial Code, Provident Bank’s security interest in USAT’s accounts receivable is taken subject to the agreement between the contracting parties including any setoff rights granted within the terms of the contract.”
Couture v. Pawtucket Credit Union, 765 A.2d 831 (R.I. 2001). · cites it 16× “) Under 11 U.S.C. § 553 (a), federal bankruptcy law recognizes and preserves a creditor's setoff right when four conditions exist: "(1) the creditor holds a `claim' against the debtor that arose before the commencement of the [bankruptcy] case; (2) the creditor owes a `debt' to…”
Show all 1,109 citing cases →
— 11 U.S.C. § 553(a) — 2 cases
Tenderloin Health v. Bank of the West, 849 F.3d 1231 (9th Cir. 2017). “56 prior to the filing of the Chapter 7 petition, CGI would have been entitled to a right of setoff under 11 U.S.C. § 553 (a).”). True, hypothetical setoff analyses, unlike preference actions, do not require that we assume a party will initiate an adversary proceeding.”
Hanssen v. DPP/AAFES (In Re Hanssen), 203 B.R. 149 (Bankr. E.D. Ark. 1996).
— 11 U.S.C. § 553(b) — 2 cases
Heckathorn Constr. Co. v. Bass Mech. Contractors, Inc. (In Re Bass Mech. Contractors, Inc.), 88 B.R. 201 (Bankr. W.D. Ark. 1988).
Bergner v. Bank One, Milwaukee, N.A. (In re Bergner), 187 B.R. 964 (Bankr. E.D. Wis. 1995).
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