453 B.R. 760
Bankr. W.D. Mo.2011Background
- Debtor Joseph Terry became disabled in December 2005 and was covered by Standard’s long-term disability policy.
- Policy reduces disability benefits by Social Security benefits and requires pursuit of all Social Security benefits; Standard could withdraw retroactive Social Security benefits to satisfy overpayments.
- On July 17, 2008, Terry received a retroactive Social Security disability award of $45,316.54; Standard withdrew this amount on July 24, 2008.
- Terry filed for Chapter 7 bankruptcy on July 31, 2008; the Trustee later demanded turnover of the $45,316.54 as a preferential transfer under §547.
- The Court previously held that the transfer was voluntary and that Terry could not exempt the recovered funds; the BAP remanded for equity-based consideration of recoupment.
- The court now holds that equity weighs against recoupment but permits Standard an unsecured claim for $45,316.54.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether recoupment of overpayments is allowed | Terry argues recoupment is inequitable and should be denied. | Standard contends it has a right to recoup the overpayments under equity. | Recoupment denied on equities. |
| Whether Standard should have a right to an unsecured claim for the amount | N/A | Standard seeks recovery as a claim against the estate. | An unsecured claim for $45,316.54 allowed. |
Key Cases Cited
- Dewey Freight System, Inc. v. United States, 31 F.3d 620 (8th Cir. 1994) (recoupment is an equitable, narrowly construed doctrine)
- In re Terry, 443 B.R. 816 (8th Cir. BAP 2011) (reiterates equity-based approach to recoupment)
- In re Farmland Industries, Inc., 318 B.R. 159 (Bankr. W.D. Mo. 2004) (informal claim requirements in bankruptcy)
- Covey v. Sonnemaker, 106 B.R. 551 (Bankr. C.D. Ill. 1988) (relevance of pre-petition payments and recoupment defenses)
- In re Kayajanian, 27 B.R. 711 (Bankr. S.D. Fla. 1983) (discussion of recoupment defenses in bankruptcy)
- In re Lovett, 106 B.R. 552 (Bankr. C.D. Ill. 1988) (precedent on equitable limits to recoupment)