Date of Decision:
February 14, 2011
Whether Debtors' claim of exemption in their federal income tax refund and certain statutory powers related thereto precluded the federal government from effecting a setoff or permitted Debtors to recover the funds after the setoff? Whether the federal government could be given relief from the automatic stay retroactively?
Debtors' claim of exemption in their federal income tax refund did not preclude the federal government from effecting a setoff against those funds. Sections 553(a)(3) or (b) and 522(g) or (h) did not provide Debtors a means to recover from the government the funds already offset. Further, Debtors' desire for a "fresh start" and §§ 553(a) and 506(a) did not permit the Court to equitably adjust the setoff. While a technical violation of the automatic stay occurred, no damages were awarded to Debtors for the violation, and the federal government was given retroactive relief from the automatic stay or, as denominated by some courts, the stay was annulled retroactively to rehabilitate the earlier stay violation.
Full Bankruptcy Court Decision: