B-158010, DEC. 15, 1965, 45 COMP. GEN. 342

B-158010: Dec 15, 1965

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PAY - WITHHOLDING - DEBT LIQUIDATION - BANKRUPTCY OF MEMBER THE DEDUCTIONS FROM THE PAY OF AN ENLISTED MEMBER OF THE UNIFORMED SERVICES WITHOUT HIS CONSENT AFTER HE HAD FILED A PETITION IN BANKRUPTCY LISTING HIS DEBT TO THE GOVERNMENT FOR THE EXCESS COST OF SHIPPING A HOUSE TRAILER ON HIS SCHEDULE OF DEBTS WERE IMPROPER IN VIEW OF THE PENDING BANKRUPTCY PROCEEDINGS. 1965: REFERENCE IS MADE TO YOUR LETTER OF AUGUST 31. WHO WAS DISCHARGED UNDER OTHER THAN HONORABLE CONDITIONS (FAILURE TO PAY JUST DEBTS) ON APRIL 28. WAS COLLECTED BY DEDUCTIONS FROM HIS ARMY PAY AFTER AUGUST 17. HE WAS DISCHARGED AS A BANKRUPT ON JUNE 2. THE CASE WAS CLOSED BY THE COURT ON JUNE 14. THE QUESTIONS PRESENTED BY YOU ARE AS FOLLOWS: THERE EXISTS A DOUBT AS TO THE AMOUNT OF THE LIABILITY OF THE DEBTOR AND ENTITLEMENT TO REFUND SHOULD SUCH COLLECTIONS BE DEEMED ERRONEOUS.

B-158010, DEC. 15, 1965, 45 COMP. GEN. 342

PAY - WITHHOLDING - DEBT LIQUIDATION - BANKRUPTCY OF MEMBER THE DEDUCTIONS FROM THE PAY OF AN ENLISTED MEMBER OF THE UNIFORMED SERVICES WITHOUT HIS CONSENT AFTER HE HAD FILED A PETITION IN BANKRUPTCY LISTING HIS DEBT TO THE GOVERNMENT FOR THE EXCESS COST OF SHIPPING A HOUSE TRAILER ON HIS SCHEDULE OF DEBTS WERE IMPROPER IN VIEW OF THE PENDING BANKRUPTCY PROCEEDINGS, WHICH LATER TERMINATED IN A DISCHARGE, PROVIDING LEGAL PROTECTION FOR THE BANKRUPT AGAINST ANY ACTION TO RECOVER THE DEBT, AND THE AMOUNT COLLECTED FROM THE MEMBER, SUBSEQUENTLY DISCHARGED UNDER OTHER THAN HONORABLE CONDITIONS FOR FAILURE TO PAY JUST DEBTS, SHOULD BE REFUNDED TO HIM, AND UPON THE FINAL AUDIT OF THE MEMBER'S ACCOUNT THROUGH DATE OF DISCHARGE, ALTHOUGH NO RIGHT OF SET-OFF EXISTS TO RECOVER THE EXCESS COST OF SHIPPING THE HOUSE TRAILER, THE DISCHARGE IN BANKRUPTCY PROTECTING THE BANKRUPT FROM RECOVERY OF THE INDEBTEDNESS, A DEBT TO THE GOVERNMENT INCURRED AFTER THE FILING OF THE BANKRUPTCY PROCEEDINGS AND NOT INCLUDED IN THE DISCHARGE MAY BE COLLECTED BY SET-OFF AGAINST THE FINAL ACCOUNT, THE BANKRUPTCY PROCEEDINGS HAVING NO BEARING ON THE LIQUIDATION OF SUBSEQUENT DEBTS.

TO LIEUTENANT COLONEL B. A. GRESICK, DEPARTMENT OF THE ARMY, DECEMBER 15, 1965:

REFERENCE IS MADE TO YOUR LETTER OF AUGUST 31, 1965, FINCY-T, FORWARDING THE FILE CONCERNING AN INDEBTEDNESS IN THE CASE OF ORBIN WADE WAMPLER, A FORMER ENLISTED MAN OF THE ARMY, RA 13 333 114, WHO WAS DISCHARGED UNDER OTHER THAN HONORABLE CONDITIONS (FAILURE TO PAY JUST DEBTS) ON APRIL 28, 1965. THE INDEBTEDNESS OF $325.63, WHICH REPRESENTS EXCESS COST OF SHIPMENT OF MR. WAMPLER'S HOUSE TRAILER, WAS COLLECTED BY DEDUCTIONS FROM HIS ARMY PAY AFTER AUGUST 17, 1964, ON WHICH DATE HE FILED A PETITION IN BANKRUPTCY LISTING THAT DEBT ON HIS SCHEDULE OF DEBTS. HE WAS DISCHARGED AS A BANKRUPT ON JUNE 2, 1965, AND THE CASE WAS CLOSED BY THE COURT ON JUNE 14, 1965. THE QUESTIONS PRESENTED BY YOU ARE AS FOLLOWS:

THERE EXISTS A DOUBT AS TO THE AMOUNT OF THE LIABILITY OF THE DEBTOR AND ENTITLEMENT TO REFUND SHOULD SUCH COLLECTIONS BE DEEMED ERRONEOUS.

THE QUESTION IS ALSO RAISED AS TO RIGHT TO SETOFF IF AN INDEBTEDNESS IS REFLECTED IN A FINAL AUDIT OF THE MEMBER'S ACCOUNT THROUGH DATE OF DISCHARGE.

THE FILE FORWARDED BY YOU SHOWS THAT IN JULY 1964 MR. WAMPLER PROTESTED THE AMOUNT OF THE INDEBTEDNESS BUT WHEN HE FILED HIS PETITION IN BANKRUPTCY HE INCLUDED THE ENTIRE AMOUNT OF $325.63 IN HIS SCHEDULE AS A DEBT OWED BY HIM TO THE UNITED STATES. APPARENTLY, THEREFORE, HE ACKNOWLEDGED THE AMOUNT OF THE DEBT, $325.63, AS CORRECT.

A MEMBER OF THE MILITARY SERVICE IS WITHIN THE CLASSES OF PERSONS SPECIFIED IN SECTION 4 OF THE ACT OF JULY 1, 1898, CH. 541, 30 STAT. 547, AS AMENDED, 11 U.S.C. 22 (A), AS ENTITLED TO THE BENEFITS OF VOLUNTARY BANKRUPTCY. SEE AUDUBON V. SHUFELDT, 181 U.S. 575 (1901). THE CLAIM OF THE UNITED STATES AGAINST MR. WAMPLER WAS A PROVABLE DEBT SUBJECT TO RELEASE BY A DISCHARGE IN BANKRUPTCY AND SINCE SUCH DISCHARGE WAS EFFECTED THE UNITED STATES COULD NOT, AFTER DATE OF BANKRUPTCY, AUGUST 17, 1964, COLLECT THE DISCHARGED DEBT OR ANY PART THEREOF BY SET-OFF AGAINST HIS CURRENTLY ACCRUING ARMY PAY WITHOUT THE MEMBER'S CONSENT. SEE 22 COMP. GEN. 330 AND 1119. ALTHOUGH IT HAS BEEN HELD THAT A DISCHARGE IN BANKRUPTCY DOES NOT EXTINGUISH THE DEBT AND A MORAL OBLIGATION TO PAY CONTINUES, THE DISCHARGE IN BANKRUPTCY DOES PROVIDE COMPLETE LEGAL PROTECTION FOR THE BANKRUPT AGAINST ANY ACTION BROUGHT THEREAFTER TO RECOVER SUCH DEBT. SEE 22 COMP. GEN. 330, 334, AND CASES CITED THEREIN. COMPARE GORE V. GORMAN-S, INC., 143 F.SUPP. 9 (1956).

ORDINARILY AN ADMINISTRATIVELY DETERMINED DEBT OF AN ENLISTED MEMBER OF THE ARMY MAY BE LIQUIDATED BY DEDUCTING MONTHLY INSTALLMENTS, NOT IN EXCESS OF TWO-THIRDS OF HIS TOTAL PAY, AS AUTHORIZED IN 37 U.S.C. 1007 (C), WITHIN CERTAIN LIMITATIONS. SEE 39 COMP. GEN. 46. HOWEVER, A DEBT INCLUDED ON A BANKRUPT'S SCHEDULE OF DEBTS IS NO LONGER SUBJECT TO COLLECTION AGAINST HIS WISHES.

YOUR LETTER OF AUGUST 31, 1965, INDICATES THAT YOU INTENDED TO ENCLOSE COPIES OF MR. WAMPLER'S MILITARY PAY VOUCHERS SHOWING COLLECTION OF THE INDEBTEDNESS BY DEDUCTION OF $150 PER MONTH IN AUGUST AND SEPTEMBER 1964 AND THE BALANCE, $25.63, IN OCTOBER 1964. THE COPIES OF PAY VOUCHERS WERE NOT RECEIVED. NOR WAS THERE FURNISHED SUFFICIENT INFORMATION TO DETERMINE THE RATES OF PAY ACCRUING TO MR. WAMPLER DURING THE PERIOD WHEN THE DEDUCTIONS WERE MADE. HOWEVER, IT APPEARS THAT SO MUCH OF HIS TOTAL PAY AS HAD ACCRUED TO HIM PRIOR TO AUGUST 17, 1964, THE DATE OF BANKRUPTCY, WAS PROPERLY SUBJECT TO SET OFF UNDER SECTION 68 OF THE 1898 ACT, AS AMENDED, 11 U.S.C. 108 (A), WHICH PROVIDES AS FOLLOWS:

IN ALL CASES OF MUTUAL DEBTS OR MUTUAL CREDITS BETWEEN THE ESTATE OF A BANKRUPT AND A CREDITOR THE ACCOUNT SHALL BE STATED AND ONE DEBT SHALL BE SET OFF AGAINST THE OTHER, AND THE BALANCE ONLY SHALL BE ALLOWED OR PAID.

SINCE MUTUALITY OF DEBITS AND CREDITS MUST EXIST AT THE TIME THE PETITION IN BANKRUPTCY IS FILED (SEE AVANT V. UNITED STATES, 165 F.SUPP. 802 (1958), NO AMOUNT ACCRUING TO MR. WAMPLER ON OR AFTER AUGUST 17, 1964, WAS AVAILABLE FOR SET-OFF.

THE RECORD SHOWS THAT IN COMPLIANCE WITH THE ORDER FOR TURNOVER ISSUED BY THE REFEREE IN BANKRUPTCY ON NOVEMBER 17, 1964, THE FINANCE OFFICER TURNED OVER TO THE TRUSTEE IN BANKRUPTCY $150, REPRESENTING THE AMOUNT WHICH HAD BEEN COLLECTED FROM MR. WAMPLER'S AUGUST 1964 PAY. HIS PAY ACCOUNT FOR NOVEMBER 1964 THEN WAS CHARGED WITH $150 TO RECOVER THE AMOUNT TURNED OVER TO THE TRUSTEE IN BANKRUPTCY, MAKING THE TOTAL DEDUCTED FROM HIS ARMY PAY ON ACCOUNT OF THIS INDEBTEDNESS, $475.63. WHETHER OR NOT THE AMOUNT OF $150, WHICH WAS WITHHELD FROM HIS AUGUST 1964 PAY AND TURNED OVER TO THE TRUSTEE IN BANKRUPTCY, EXCEEDED THE TOTAL PAY AVAILABLE FOR SET-OFF AS OF AUGUST 17, 1964, CANNOT BE DETERMINED ON THE BASIS OF THE INFORMATION FURNISHED. HOWEVER, IN VIEW OF THE DISPOSITION OF THAT MONEY PURSUANT TO A COURT ORDER, NO FURTHER ACTION NEED BE TAKEN WITH REGARD TO THAT DEDUCTION.

THE RECORD FURNISHED DOES NOT INCLUDE ANY INFORMATION RELATIVE TO OTHER ASSETS OF THE BANKRUPT, IN ADDITION TO THE $150 TURNED OVER BY THE FINANCE OFFICER, OR RELATIVE TO DISTRIBUTION OF SUCH ASSETS PURSUANT TO THE PROCEEDINGS IN BANKRUPTCY. IT IS ASSUMED THAT SUCH ASSETS, IF ANY, AND THE $150 WERE APPLIED AS PROVIDED BY LAW.

SINCE THE DEDUCTIONS FROM MR. WAMPLER'S PAY IN SEPTEMBER 1964 ($150), OCTOBER 1964 ($25.63) AND NOVEMBER 1964 ($150), WERE IMPROPER IN VIEW OF THE BANKRUPTCY PROCEEDINGS WHICH WERE THEN PENDING, AND WHICH LATER TERMINATED IN A DISCHARGE, SUCH DEDUCTIONS, TOTALING $325.63, SHOULD NOW BE PAID TO HIM. YOUR FIRST QUESTION IS ANSWERED ACCORDINGLY.

WITH RESPECT TO YOUR SECOND QUESTION, IF YOU ARE REFERRING TO THE POSSIBILITY THAT A FINAL AUDIT OF MR. WAMPLER'S PAY ACCOUNT WILL REFLECT AS A DEBT THE REMAINING BALANCE DUE THE UNITED STATES FOR EXCESS COST OF SHIPMENT OF HIS HOUSE TRAILER, WHICH DEBT WAS DISCHARGED IN BANKRUPTCY, NO RIGHT TO SET-OFF EXISTS FOR THE REASONS STATED ABOVE. HOWEVER, IF HE INCURRED A NEW ITEM OF INDEBTEDNESS AFTER AUGUST 17, 1964, WHICH WAS NOT INCLUDED IN THE DISCHARGE IN BANKRUPTCY, THE BANKRUPTCY PROCEEDINGS WOULD HAVE NO BEARING ON THE LIQUIDATION OF SUCH DEBT BY SET-OFF OR OTHERWISE.