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ARTICLE · 18 JULY 2018

Prepetition Setoff Not An 'Improvement In Position' Under Bankruptcy Code

Duane Morris LLP
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In a recent decision out of the U.S. Bankruptcy Court for the Western District of Virginia, a court analyzed the effect of a setoff effectuated between two governmental units in the 90 days...

United StatesInsolvency/Bankruptcy/Re-Structuring
Rudolph Di Massa, Jr.,
Rudolph Di Massa, Jr.,
Catherine Heitzenrater
Catherine Heitzenrater
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In a recent decision out of the U.S. Bankruptcy Court for the Western District of Virginia, a court analyzed the effect of a setoff effectuated between two governmental units in the 90 days prior to the filing of a husband and wife's bankruptcy case. In Hurt v. U.S. Department of Housing and Urban Development (In re Hurt), 579 B.R. 765 (Bankr. W.D. Va. 2017), the court addressed competing motions for summary judgment filed by the debtors, on the one hand, and the U.S. Department of Housing and Urban Development (HUD), on the other hand, in an adversary proceeding instituted by the debtors seeking to avoid a prepetition setoff of the debtors' tax refund on account of a debt owing to HUD. In ruling in favor of HUD, the court found that a pre-petition setoff is not avoidable as a preference under Section 547 of the Bankruptcy Code, and HUD did not "improve its position" vis-à-vis the debtors within the scope of Section 553(b) of the Bankruptcy Code, and therefore the

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