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creditor and the debtor that arose pre-bankruptcy are permitted with several exceptions, as set forth by
               11 USC 553(a). First, claims disallowed  fn 23   by the court may not be set off. Second, claims transferred
               by a party other than the debtor either postpetition or within 90 days of the filing at a time when the
               debtor was insolvent may not be set off. Lastly, 11 USC 553(a) seeks to deter creditors from intentional-
               ly accumulating claims against a distressed business by disallowing setoff of debts owed to the debtor
               incurred by the creditor "for the purpose of obtaining a right of setoff against the debtor" within 90 days
               of the filing at a time when the debtor was insolvent. Note that pursuant to 11 USC 553(c), debtors are
               presumed to have been insolvent on and during the 90-day period preceding the petition filing. Prepeti-
               tion setoffs meeting any of the conditions of 11 USC 553(a) may be subject to avoidance actions. Practi-
               tioners may support such actions by identifying avoidable setoffs within a debtor’s accounting records
               during the 90-day window prior to filing and assisting to rebut or confirm the presumption of insolven-
               cy.

               In addition to the restrictions on prepetition setoffs outlined by 11 USC 553(a), 11 USC 553(b) also re-
               stricts a creditor’s ability to improve its position relative to other creditors via setoff within 90 days im-
               mediately preceding the petition date. In particular, this provision permits a trustee to recover from the
               creditor the amount of any increase in the amount by which a claim against the debtor exceeded the mu-
               tual debt owing to the debtor (or the "insufficiency") between the date of setoff and the later of 90 days
               before the date of the filing and the first date an insufficiency occurred within the 90 days preceding the
               filing. To illustrate, assume the debtor was loaned $50,000 by a bank and also held a checking account
               with that bank. Further, assume the following on the dates listed, with no changes in the balances on in-
               terim dates:



                    Days Before Petition:           90 Days       60 Days        30 Days       10 Days
                                                                                             (Setoff Date)
                    Bank Loan Balance                 $ 50,000       $ 50,000      $ 50,000      $ 50,000
                    Checking Account Balance          $ 60,000       $ 10,000      $ 15,000      $ 25,000
                    Insufficiency?                         No            Yes           Yes            Yes

                    Insufficiency Amount                             $ 40,000      $ 35,000      $ 25,000

               Based on the given information, the trustee would be entitled to recover $15,000 or the increase between
               the $25,000 insufficiency on the setoff date and the $40,000 insufficiency on the first date of an insuffi-
               ciency — 60 days prior to the petition date. Alternatively, assume the following, with no changes in the
               balances on interim dates:



                    Days Before Petition:           90 Days       60 Days        30 Days       10 Days
                                                                                             (Setoff Date)
                    Bank Loan Balance                 $ 50,000       $ 50,000      $ 50,000      $ 50,000




        fn 22   Note that the right of setoff is subject to the automatic stay provisions outlined by 11 USC 362(a)(7), thus postpetition setoff of
        mutual obligations of the debtor and creditor that arose prepetition may not occur without court order.

        fn 23   For further information regarding allowable claims or interests, refer to 11 USC 502


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