Recoupment: Eighth Circuit Rejects ‘Balancing of the Equities’ Test

The United States Court of Appeals for the Eighth Circuit recently held that equitable considerations could not prevent a creditor’s recouping amounts owed to it by a Chapter 7 debtor. Terry v. Standard Ins. Co. (In re Terry), 687 F.3d 961 at 965 (8th Cir. 2012). Reversing the bankruptcy court and the Bankruptcy Appellate Panel (BAP), the Eighth Circuit explained that “once a party meets the same-transaction test … a court should not impose an additional ‘balancing of the equities’ requirement” on the doctrine of recoupment. Id. Ending a three-year battle in three courts over the sum of $45,316, the court’s straightforward ruling resulted in a win for a disability insurer over a disabled individual. In reality, however, nobody won.