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Consumer Bankruptcy Law and Practice: 9.4.4.2 Setoff and Recoupment of Government Benefits

Some debtors seek bankruptcy relief because the limited income they receive from a government benefit program is being reduced to recover an overpayment of benefits. The question of how such overpayments are treated in bankruptcy, including application of the automatic stay, often turns on the type of benefit program involved and the distinction between setoff and recoupment. Both setoff and recoupment involve situations in which the debtor and creditor are obligated to each other.