18
Opinion of the Court
it claimed was subject to setoff—that is, the bank refused to pay withdrawals from the account that would reduce the balance below the sum that it claimed was due on respondent's loan. Five days later, petitioner filed in the Bankruptcy Court, under § 362(d), a "Motion for Relief from Automatic Stay and for Setoff." Respondent then filed a motion to hold petitioner in contempt, claiming that petitioner's administrative hold violated the automatic stay established by § 362(a).
The Bankruptcy Court ruled on respondent's contempt motion first. It concluded that petitioner's "administrative hold" constituted a "setoff" in violation of § 362(a)(7) and sanctioned petitioner. Several weeks later, the Bankruptcy Court granted petitioner's motion for relief from the stay and authorized petitioner to set off respondent's remaining checking account balance against the unpaid loan. By that time, however, respondent had reduced the checking account balance to zero, so there was nothing to set off.
The District Court reversed the judgment that petitioner had violated the automatic stay, concluding that the administrative hold was not a violation of § 362(a). The Court of Appeals reversed. "[A]n administrative hold," it said, "is tantamount to the exercise of a right of setoff and thus violates the automatic stay of § 362(a)(7)." 37 F. 3d 155, 158 (CA4 1994). We granted certiorari. 514 U. S. 1035 (1995).
II
The right of setoff (also called "offset") allows entities that owe each other money to apply their mutual debts against each other, thereby avoiding "the absurdity of making A pay B when B owes A." Studley v. Boylston Nat. Bank, 229 U. S. 523, 528 (1913). Although no federal right of setoff is created by the Bankruptcy Code, 11 U. S. C. § 553(a) provides that, with certain exceptions, whatever right of setoff otherwise exists is preserved in bankruptcy. Here it is undisputed that, prior to the bankruptcy filing, petitioner had the
Page: Index Previous 1 2 3 4 5 6 NextLast modified: October 4, 2007