United States Code
11 U.S.C. § 553 — Setoff
Section 553 preserves — it does not create — a creditor's existing right to set off a mutual debt the creditor owes you against a claim the creditor holds against you, where both arose before the case began. Subsection (a) lists three situations that cut off that right, subsection (b) lets a trustee recover part of a setoff taken within 90 days before filing, and subsection (c) presumes insolvency during those 90 days.
If a bank, credit union, or other creditor both owes you money and is owed money by you, setoff is the mechanism that lets those two amounts cancel each other out. Section 553 is the provision that decides how much of that pre-bankruptcy right survives once a case is filed. It matters most to people whose deposit account sits at the same institution that holds their loan.
What does setoff mean in bankruptcy?
Setoff is the cancelling of two debts that run in opposite directions between the same two parties. Subsection (a) describes it as a creditor offsetting "a mutual debt owing by such creditor to the debtor" against "a claim of such creditor against the debtor." Both sides of that pairing have to exist: the creditor owes you something, and you owe the creditor something. The everyday version is an account balance held at the same institution that holds a loan. Note what the section does not do. It says this title "does not affect" the right of setoff, which is preservation language, not a grant. The right itself comes from outside the Bankruptcy Code, and subsection (a) sets the conditions under which the filing of a case leaves it intact. Subsection (a) also carries a timing requirement on both sides: the mutual debt owed to the debtor and the creditor's claim must each have arisen before the commencement of the case.
Does a creditor keep the right to set off after I file?
Subsection (a) opens with a qualifier — "Except as otherwise provided in this section and in" two other Code sections it names. So the right preserved here is not a free hand. Two other provisions operate on their own terms, and the exceptions inside subsection (a) itself operate on top of that. Read subsection (a) as answering one narrow question: does the right survive the filing at all? It does, in general, for mutual pre-petition debts, subject to the three carve-outs in paragraphs (1) through (3). Whether a creditor may act on a surviving right immediately, and what steps that requires, is governed by the provisions the opening clause defers to and is a question to raise with a bankruptcy attorney or your trustee. The section also does not describe setoff as automatic. It speaks of a creditor's right to offset — something the creditor exercises, not something that happens on its own.
When does subsection (a) take the setoff right away?
Three carve-outs appear in subsection (a). Paragraph (1) applies to the extent the creditor's claim against the debtor is disallowed. If there is no allowed claim, there is nothing on that side of the equation to offset. Paragraph (2) targets claims the creditor acquired from someone else. The right is cut off to the extent the claim was transferred to the creditor by an entity other than the debtor either after the case commenced, or after 90 days before the petition date while the debtor was insolvent. Paragraph (3) targets the other side of the equation: a debt the creditor incurred to the debtor after 90 days before the petition date, while the debtor was insolvent, and for the purpose of obtaining a right of setoff. All three of paragraph (3)'s conditions are stated together, so the purpose element sits alongside the timing and insolvency elements. Paragraphs (2) and (3) each carry parenthetical exceptions for setoffs of the kinds identified there.
Can a trustee undo a setoff taken shortly before filing?
Subsection (b) addresses setoffs that happened on or within 90 days before the petition date. Where it applies, the trustee may recover from the creditor the amount offset — but only to the extent of an improvement in the creditor's position, and only in the measured way the subsection describes. The measuring stick is "insufficiency," defined in paragraph (b)(2) as the amount, if any, by which a claim against the debtor exceeds the mutual debt owing to the debtor by the holder of that claim. The trustee's recovery is the extent to which the insufficiency on the date of the setoff is less than the insufficiency on the later of two benchmark dates: 90 days before the petition date, and the first day within that 90-day window on which an insufficiency existed. In plain terms, the subsection looks at whether the creditor shrank its exposure during that window. Subsection (b)(1) opens with a list of setoff types it does not reach.
Why does the insolvency presumption in subsection (c) matter?
Insolvency is an element in two places in this section. Paragraph (a)(2)(B)(ii) and paragraph (a)(3)(B) each require that the debtor was insolvent at the relevant time before that carve-out can apply. Subsection (c) supplies a presumption for that element: for purposes of this section, the debtor is presumed to have been insolvent on and during the 90 days immediately preceding the filing date. That matters because it shifts what has to be established. Without the presumption, insolvency during that window would be something to prove from scratch each time. With it, the section starts from the assumption that it existed. The presumption is stated as a presumption, not as a finding, and it is limited by its own words to the purposes of this section and to that 90-day window. How a presumption operates in a contested matter is a procedural question to raise with a bankruptcy attorney.
This summary is our plain-English explanation, written to help you find the right part of the text below. The section itself is the authority — where the two differ, the text controls.
Text of 11 U.S.C. § 553
Reproduced in full from the official source, verified as of July 2026. View it at the source.
(a) Except as otherwise provided in this section and in sections 362 and 363 of this title, this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case, except to the extent that—
(1) the claim of such creditor against the debtor is disallowed;
(2) such claim was transferred, by an entity other than the debtor, to such creditor—
(A) after the commencement of the case; or
(B)(i) after 90 days before the date of the filing of the petition; and
(ii) while the debtor was insolvent (except for a setoff of a kind described in section 362(b)(6), 362(b)(7), 362(b)(17), 362(b)(27), 555, 556, 559, 560, or 561); or
(3) the debt owed to the debtor by such creditor was incurred by such creditor—
(A) after 90 days before the date of the filing of the petition;
(B) while the debtor was insolvent; and
(C) for the purpose of obtaining a right of setoff against the debtor (except for a setoff of a kind described in section 362(b)(6), 362(b)(7), 362(b)(17), 362(b)(27), 555, 556, 559, 560, or 561).
(b)(1) Except with respect to a setoff of a kind described in section 362(b)(6), 362(b)(7), 362(b)(17), 362(b)(27), 555, 556, 559, 560, 561, 365(h), 546(h), or 365(i)(2) of this title, if a creditor offsets a mutual debt owing to the debtor against a claim against the debtor on or within 90 days before the date of the filing of the petition, then the trustee may recover from such creditor the amount so offset to the extent that any insufficiency on the date of such setoff is less than the insufficiency on the later of—
(A) 90 days before the date of the filing of the petition; and
(B) the first date during the 90 days immediately preceding the date of the filing of the petition on which there is an insufficiency.
(2) In this subsection, "insufficiency" means amount, if any, by which a claim against the debtor exceeds a mutual debt owing to the debtor by the holder of such claim.
(c) For the purposes of this section, the debtor is presumed to have been insolvent on and during the 90 days immediately preceding the date of the filing of the petition.
(Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2602; Pub. L. 98–353, title III, §§395, 467, July 10, 1984, 98 Stat. 365, 380; Pub. L. 101–311, title I, §105, June 25, 1990, 104 Stat. 268; Pub. L. 103–394, title II, §§205(b), 222(b), title V, §501(d)(19), Oct. 22, 1994, 108 Stat. 4123, 4129, 4146; Pub. L. 109–8, title IX, §907(n), Apr. 20, 2005, 119 Stat. 181.)
Notes and amendment history
Published by the official source alongside the section above. These notes record how the text has changed over time and the reasoning behind those changes. They are not the operative rule — the enacted text is the section itself.
Historical and Revision Notes
legislative statements
Section 553 of the House amendment is derived from a similar provision contained in the Senate amendment, but is modified to clarify application of a two-point test with respect to setoffs.
senate report no. 95–989
This section preserves, with some changes, the right of setoff in bankruptcy cases now found in section 68 of the Bankruptcy Act [section 108 of former title 11]. One exception to the right is the automatic stay, discussed in connection with proposed 11 U.S.C. 362. Another is the right of the trustee to use property under section 363 that is subject to a right of setoff.
The section states that the right of setoff is unaffected by the bankruptcy code except to the extent that the creditor's claim is disallowed, the creditor acquired (other than from the debtor) the claim during the 90 days preceding the case while the debtor was insolvent, the debt being offset was incurred for the purpose of obtaining a right of setoff, while the debtor was insolvent and during the 90-day prebankruptcy period, or the creditor improved his position in the 90-day period (similar to the improvement in position test found in the preference section 547(c)(5)). Only the last exception is an addition to current law.
As under section 547(f), the debtor is presumed to have been insolvent during the 90 days before the case.
Editorial Notes
Amendments
**2005**—Subsec. (a)(2)(B)(ii). Pub. L. 109–8, §907(n)(1), inserted "(except for a setoff of a kind described in section 362(b)(6), 362(b)(7), 362(b)(17), 362(b)(27), 555, 556, 559, 560, or 561)" before semicolon.
Subsec. (a)(3)(C). Pub. L. 109–8, §907(n)(2), inserted "(except for a setoff of a kind described in section 362(b)(6), 362(b)(7), 362(b)(17), 362(b)(27), 555, 556, 559, 560, or 561)" before period.
Subsec. (b)(1). Pub. L. 109–8, §907(n)(3), substituted "362(b)(17), 362(b)(27), 555, 556, 559, 560, 561," for "362(b)(14)," in introductory provisions.
**1994**—Subsec. (a)(1). Pub. L. 103–394, §501(d)(19)(A), struck out before semicolon at end "other than under section 502(b)(3) of this title".
Subsec. (b)(1). Pub. L. 103–394, §501(d)(19)(B), substituted "section 362(b)(14)," for "section 362(b)(14),,".
Pub. L. 103–394, §222(b), which directed the amendment of section 553(b)(1) by inserting "546(h)," after "365(h)," was executed by making the insertion in section 553(b)(1) of this title to reflect the probable intent of Congress.
Pub. L. 103–394, §205(b), substituted "365(h)" for "365(h)(2)".
**1990**—Subsec. (b)(1). Pub. L. 101–311 substituted "362(b)(7), 362(b)(14)," for "362(b)(7),".
**1984**—Subsec. (b)(1). Pub. L. 98–353 inserted ", 362(b)(7)," after "362(b)(6)", and substituted ", 365(h)(2), or 365(i)(2)" for "or 365(h)(1)".
Statutory Notes and Related Subsidiaries
Effective Date of 2005 Amendment
Amendment by Pub. L. 109–8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 of Pub. L. 109–8, set out as a note under section 101 of this title.
Effective Date of 1994 Amendment
Amendment by Pub. L. 103–394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103–394, set out as a note under section 101 of this title.
Effective Date of 1984 Amendment
Amendment by Pub. L. 98–353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98–353, set out as a note under section 101 of this title.
Guides that rely on 11 U.S.C. § 553
Plain-language explanations on this site that cite this section.
By Antonio G. Jimenez, Esq. · Florida Bar No. 21022
Last reviewed July 27, 2026 · Sources verified July 27, 2026 · How we verify
Every figure on this page is drawn from a primary legal source and checked against our canonical legal database before publication. Bankruptcy.law is not a law firm and does not provide legal advice.
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