There are two similar but distinct mechanisms through which a creditor might net amounts owed to the debtor against amounts owed by the debtor — setoff and recoupment. Understanding the distinction between them, and how bankruptcy affects those rights, is crucial to maximizing a creditor’s recovery and minimizing exposure. This article discusses the key issues of setoff and recoupment in a Chapter 11 bankruptcy.

Troutman Pepper's Creditor’s Rights Toolkit is a series that provides practical insights to help creditors confront the challenges of commercial bankruptcy.