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Keywords

appealmotionbankruptcyrespondent

appealbankruptcyrespondent

Related Cases

Citizens Bank of Maryland v. Strumpf, 516 U.S. 16, 116 S.Ct. 286, 133 L.Ed.2d 258, 64 USLW 4001, 33 Collier Bankr.Cas.2d 869, 28 Bankr.Ct.Dec. 97, Bankr. L. Rep. P 76666A, 95 Cal. Daily Op. Serv. 8436, 95 Daily Journal D.A.R. 14,562

Facts

When the respondent filed for relief under Chapter 13 of the Bankruptcy Code, he had a checking account with the petitioner bank and was in default on a loan. Following the bankruptcy filing, the bank placed an administrative hold on the debtor's account, refusing to allow withdrawals that would reduce the balance below the amount owed on the loan. The debtor subsequently filed a motion to hold the bank in contempt for this action, claiming it violated the automatic stay provisions of the Bankruptcy Code.

When respondent filed for relief under the Bankruptcy Code, he had a checking account with, and was in default on the remaining balance of a loan from, petitioner bank. Under the Code, a bankruptcy filing gives rise to an automatic stay of a creditor's “setoff of any debt owing to the debtor that arose before the commencement of the [bankruptcy case] against any claim against the debtor.” 11 U.S.C. § 362(a)(7).

Issue

Whether the creditor of a debtor in bankruptcy may temporarily withhold payment of a debt it owes to the debtor without violating the automatic stay imposed by 11 U.S.C. § 362(a).

We must decide whether the creditor of a debtor in bankruptcy may, in order to protect its setoff rights, temporarily withhold payment of a debt that it owes to the debtor in bankruptcy without violating the automatic stay imposed by 11 U.S.C. § 362(a).

Rule

The automatic stay under 11 U.S.C. § 362(a) prohibits the setoff of any debt owing to the debtor that arose before the commencement of the bankruptcy case against any claim against the debtor.

Under the Code, a bankruptcy filing gives rise to an automatic stay of a creditor's “setoff of any debt owing to the debtor that arose before the commencement of the [bankruptcy case] against any claim against the debtor.” 11 U.S.C. § 362(a)(7).

Analysis

The Supreme Court analyzed whether the bank's temporary refusal to pay the debtor constituted a setoff under the Bankruptcy Code. The Court concluded that the bank's actions did not amount to a setoff because the refusal to pay was temporary while the bank sought relief from the automatic stay. The Court emphasized that a setoff requires an intent to permanently settle accounts, which was not present in this case.

In our view, petitioner's action was not a setoff within the meaning of § 362(a)(7). Petitioner refused to pay its debt, not permanently and absolutely, but only while it sought relief under § 362(d) from the automatic stay.

Conclusion

The Supreme Court reversed the judgment of the Court of Appeals, holding that the bank's actions did not violate the automatic stay provisions of the Bankruptcy Code.

The judgment of the Court of Appeals for the Fourth Circuit is reversed.

Who won?

The bank prevailed in the case because the Supreme Court found that its temporary refusal to pay did not constitute a violation of the automatic stay.

Court of Appeals reversed.

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