Bankr. E.D.N.C.: In re Goodman- Setoff of Social Security Funds


In December 2010, the Social Security Administration the Debtor of an alleged overpayment of SSI benefits, seeking repayment of $11,585. In March 2011, the Debtor received a “Notice of Award” for Social Security Disability (“SSD”) benefits of $1,001.00 beginning March 2011. Also in March 2011, the Debtor was notified of SSA’s decision that she was entitled to receive a monthly payment of $674.00 and retroactive SSI benefits from May 2010 through March 2011 totaling $7,414.00. Then on March 24, 2011, SSA intercepted the debtor’s $7,414.00 in retroactive SSI benefits, which it applied toward the $11,585.00 overpayment. The Debtor filed bankruptcy on April 7, 2011, and subsequently sought turnover of the $7,414.00 seized within 90 days of the filing of her petition.

11 U.S.C. § 553(a) recognizes and preserves the right to setoff that exists under applicable state law where the following four conditions are met:
(1) the creditor must hold a “claim” against the debtor that arose before the commencement of the bankruptcy case;
(2) the creditor must owe a “debt” to the debtor that arose prior to the commencement of the bankruptcy case;
(3) both the “claim” and the “debt” must be mutual; and
(4) both the “claim” and the “debt” are each valid and enforceable.

§ 553(b), however, expressly prohibits any creditor from improving its position through a setoff within the 90-days prior to the filing of the bankruptcy petition and allows a Trustee to seek turnover of such funds. (§ 522(h) allows the Debtor to exercise the trustee’s power to recover property improperly setoff under § 553(b) if such property could be exempted.) The existence of an insufficiency, i.e. the amount owed to the creditor exceed the amount owed by the creditor, presumes that there is a mutual debt between the parties. Here there was no mutual until March of 2011, when the SSA did first decided that it owed the Debtor $7,414.00, but as that date was withing 90-days of the filing of the petition, the Debtor was entitled under §553(b) to return of the seized funds.

For a copy of the opinion, please see:

Goodman- Setoff of Social Security Funds.pdf


1. Bachelor of Arts degree in English Literature from Washington University, 1993. 2. Juris Doctor degree from George Washington University, 1996. Admissions to Practice of Law: North Carolina Bar, 1996. Federal District Courts for the Eastern and Middle Districts of North Carolina. Specialty Certification: North Carolina State Bar: Certified as a Specialist in Consumer Bankruptcy. Areas of Practice: Practice limited to consumer and business debtor bankruptcy law, 1998 to present. Memberships: National Association of Consumer Bankruptcy Attorneys (NACBA). North Carolina Academy of Trial Lawyers (NCATL). North Carolina Bar Association, Bankruptcy Section. Lectures prepared and presented: North Carolina Academy of Trial Lawyers seminar on bankruptcy; Topic: Counseling the Consumer Debtor Prior to Court - C.Y.A. Forms to Help 'Gird They Loins'; 2001. Middle District Bankruptcy Seminar; Topic: Preparing Chapter 13 Plans; 2002. NACBA National Convention; Topic: Efficient Office Practices; 2003. NACBA National Convention; Topic: Chapter 7 vs. Chapter 13 Debates; 2004. Middle District Bankruptcy Seminar; Topic: Chapter 7 & 13 Hot Issues; 2004. Positions held: NACBA National Convention; Convention Chair; 2008. NACBA National Convention; Panel Moderator: Topic: Basic Bankruptcy Issues; 2008. NACBA National Convention; Panel Moderator; Topic: Chapter 13-Disposable Income and Other Issues; 2007. NACBA National Convention; Panel Moderator; Topic: Representing Members of the Military and Their Families; 2007. NACBA, Member of National Board of Directors, 2006 to present. NCATL, Chair of the Bankruptcy Section, 2003 to 2007. NACBA, Chair of the North Carolina Section, 2003 to 2007. NC Bar Association, Bankruptcy Section, Bankruptcy Council Member, 2004 to present.

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