(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; 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.

    (b)(1) Except with respect to a setoff of a kind described in 
section 362(b)(6), 362(b)(7), 362(b)(14),\1\ 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--
---------------------------------------------------------------------------
    \1\ See References in Text note below.
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        (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, 
Secs. 395, 467, July 10, 1984, 98 Stat. 365, 380; Pub. L. 101-311, title 
I, Sec. 105, June 25, 1990, 104 Stat. 268; Pub. L. 103-394, title II, 
Secs. 205(b), 222(b), title V, Sec. 501(d)(19), Oct. 22, 1994, 108 Stat. 
4123, 4129, 4146.)


                      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.

                       References in Text

    Section 362(b)(14), referred to in subsec. (b)(1), was redesignated 
section 362(b)(17) by Pub. L. 103-394, title V, 
Sec. 501(d)(7)(B)(vii)(II), (III), Oct. 22, 1994, 108 Stat. 4144.


                               Amendments

    1994--Subsec. (a)(1). Pub. L. 103-394, Sec. 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, Sec. 501(d)(19)(B), substituted 
``section 362(b)(14),'' for ``section 362(b)(14),,''.
    Pub. L. 103-394, Sec. 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, Sec. 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)''.


                    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.

                  Section Referred to in Other Sections

    This section is referred to in sections 106, 349, 502, 506, 522, 
541, 542, 546, 550, 901 of this title; title 15 section 78eee.