Also known as: rights of setoff · setoff right · set-off right · setoff · right to set off · offset right
Written by attorneys · grounded in primary & secondary sources — see below
A right allowing one party to deduct a debt owed to it by another party from a debt it owes to that party, thereby netting the obligations. The right requires mutual debts arising in the same capacity and typically applies only to mature obligations.
Rebecca Ross sued Rising Sun Electronics in federal court for breach of contract and sought over $100,000 in damages. The jury awarded her only $45,000 after the court applied a setoff for amounts she owed the company on a separate invoice. Because the amount she was entitled to recover, computed without regard to the setoff, still fell below the jurisdictional threshold, the district court denied her costs and imposed costs on her instead.
Rhea Reynolds purchased a vehicle from Redline Automotive and later revoked acceptance after discovering defects. Redline sought to reduce her refund by the reasonable value of her use of the car during the period before revocation. The court allowed the setoff because the dealer established the value of that use and the debts were mutual.
Select any source to read its text and confirm it supports the definition.
The debts must be mutual and mature. Mutual means the bank and customer owe each other in the same capacity. Mature means the debt is due and owing. A bank may debit the account to offset a loan only after these requirements are satisfied.
Supporting sources
Yes. When a distribution is declared, the partnership may offset amounts the assigning partner owes against the distribution payable to the transferee. The transferee steps into the shoes of the partner for that distribution but remains subject to the offset.
Supporting sources
A plaintiff's recovery is computed without regard to any setoff or counterclaim when determining whether the judgment falls below the jurisdictional threshold. If the net recovery is less than $75,000, the court may deny costs to the plaintiff and impose costs instead.
Supporting sources
The debts must be mutual and must have arisen before the bankruptcy petition. A claim that is disallowed under section 502 cannot support a setoff. Postpetition obligations generally cannot be offset against prepetition claims.
Supporting sources
…property, . . . and is an unsecured claim to the extent that the value of such creditor's interest or the amount so subject to setoff is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in…