Two Circuits Limit Creditors’ Setoff Rights in Bankruptcy Cases

“The right of setoff … allows entities to apply their mutual debts against each other to avoid the pointless exercise of ‘making A pay B when B owes A.’” held the Seventh Circuit on Aug. 17, 2018. But the Bankruptcy Code limits “a creditor’s right of setoff during the ninety-day period prior to the” date of bankruptcy, said the court. In this article, of counsel Michael Cook discusses the Third Circuit and Seventh Circuit decisions to limit a creditor’s right of setoff.