B-197624.OM, OCT 3, 1980

B-197624.OM: Oct 3, 1980

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THE ISSUE IS WHETHER THE AMOUNT OF READJUSTMENT PAY WHICH MUST BE DEDUCTED FROM SERGEANT FIRST CLASS PAUL'S RETIRED PAY BEFORE HE CAN BEGIN RECEIVING RETIRED PAY IS A PROVABLE DEBT. WHILE THE TERM "DEBT" IN THE BANKRUPTCY LAW IS NOT RESTRICTED TO ITS STRICT LEGAL MEANING IT DOES REQUIRE THAT SOMETHING BE OWED TO THE CREDITOR. AN OFFICER OF A RESERVE COMPONENT OR AN OFFICER OF THE ARMY OR THE AIR FORCE WITHOUT COMPONENT IS ENTITLED TO RECEIVE READJUSTMENT PAY IF AFTER AT LEAST 5 YEARS OF CONTINUOUS ACTIVE DUTY HE IS INVOLUNTARILY RELEASED. 10 U.S.C. 75 PERCENT OF THE AMOUNT HE WAS PAID FOR READJUSTMENT PAY IS TO BE DEDUCTED IMMEDIATELY FROM HIS RETIRED PAY. 10 U.S.C. ONCE THE MEMBER RETIRES HIS READJUSTMENT PAY IS VIEWED AS A SUBSTITUTE FOR RETIRED PAY UNTIL 75 PERCENT OF THE AMOUNT HE RECEIVED FOR READJUSTMENT PAY IS WITHHELD.

B-197624.OM, OCT 3, 1980

PRECIS-UNAVAILABLE

ASSOCIATE DIRECTOR, FGMSD - CLAIMS GROUP (ROOM 5858):

RETURNED. SECTION 71(A) OF THE BANKRUPTCY ACT (ACT) (11 U.S.C. SEC. 35(A) (1976)) STATES THAT A DISCHARGE IN BANKRUPTCY OPERATES TO RELEASE A BANKRUPT FROM ALL OF HIS PROVABLE DEBTS. THIS MEANS ONLY THE PROVABLE DEBTS AND NO OTHER LIABILITIES. ZWICK V. FREEMAN, 373 F.2D 110, 116 (2D CIR. 1967) CERT. DENIED 389 U.S. 835 (1967). SECTION 63 OF THE ACT (11 U.S.C. SEC. 103) ENUMERATES THOSE DEBTS WHICH MAY BE PROVED. THUS, THE ISSUE IS WHETHER THE AMOUNT OF READJUSTMENT PAY WHICH MUST BE DEDUCTED FROM SERGEANT FIRST CLASS PAUL'S RETIRED PAY BEFORE HE CAN BEGIN RECEIVING RETIRED PAY IS A PROVABLE DEBT.

WHILE THE TERM "DEBT" IN THE BANKRUPTCY LAW IS NOT RESTRICTED TO ITS STRICT LEGAL MEANING IT DOES REQUIRE THAT SOMETHING BE OWED TO THE CREDITOR. ZWICK V. FREEMAN, SUPRA. HERE, SERGEANT PAUL DOES NOT OWE ANYTHING TO THE ARMY FOR THE READJUSTMENT PAY HE RECEIVED.

AN OFFICER OF A RESERVE COMPONENT OR AN OFFICER OF THE ARMY OR THE AIR FORCE WITHOUT COMPONENT IS ENTITLED TO RECEIVE READJUSTMENT PAY IF AFTER AT LEAST 5 YEARS OF CONTINUOUS ACTIVE DUTY HE IS INVOLUNTARILY RELEASED. 10 U.S.C. SEC. 687(A) (1976). HOWEVER IF THE OFFICER WHO RECEIVED READJUSTMENT PAY SUBSEQUENTLY BECOMES ENTITLED TO RECEIVE RETIRED PAY, 75 PERCENT OF THE AMOUNT HE WAS PAID FOR READJUSTMENT PAY IS TO BE DEDUCTED IMMEDIATELY FROM HIS RETIRED PAY. 10 U.S.C. SEC. 687(F) (1976).

IN ESSENCE, ONCE THE MEMBER RETIRES HIS READJUSTMENT PAY IS VIEWED AS A SUBSTITUTE FOR RETIRED PAY UNTIL 75 PERCENT OF THE AMOUNT HE RECEIVED FOR READJUSTMENT PAY IS WITHHELD. THUS, READJUSTMENT PAY IS CONSIDERED TO BE IN LIEU OF RETIRED PAY. THEREFORE, THERE IS NO DEBT DUE THE UNITED STATES SINCE THE AMOUNT TO BE WITHHELD CAN ONLY BE DEDUCTED FROM THE MEMBER'S RETIRED PAY AND NO OTHER SOURCE OF FUNDS. IN OTHER WORDS, HIS ENTITLEMENT TO RECEIVE RETIRED PAY DOES NOT BEGIN UNTIL THE TIME PERIOD EXPIRES IN WHICH THE AMOUNT OF RETIRED PAY HE WOULD HAVE RECEIVED EQUALS 75 PERCENT OF HIS READJUSTMENT PAY.

IN ACCORDANCE WITH THE ABOVE WE DO NOT CONSIDER THE AMOUNT OF MONEY TO BE WITHHELD FROM SERGEANT PAUL'S RETIRED PAY AS CONSTITUTING A PROVABLE DEBT UNDER THE BANKRUPTCY ACT. THEREFORE, SERGEANT PAUL'S LIABILITY IS NOT DISCHARGEABLE. THUS, THE DISCHARGE IN BANKRUPTCY WHICH HE RECEIVED ON NOVEMBER 21, 1979, DOES NOT AFFECT THE REQUIREMENT THAT THE ARMY NOT BEGIN PAYING HIS RETIRED PAY UNTIL THE AMOUNT WHICH HE WOULD OTHERWISE HAVE RECEIVED IN RETIRED PAY EQUALS 75 PERCENT OF HIS READJUSTMENT PAY.

THE QUESTION THEN ARISES, WHEN SHOULD THE ARMY BEGIN TO PAY SERGEANT PAUL HIS RETIRED PAY. THE RECORD INDICATES THAT HE WAS PLACED ON THE RETIRED LIST EFFECTIVE FEBRUARY 1, 1979. THE ARMY SHOULD NOT HAVE STARTED TO PAY HIS RETIRED PAY AT THAT TIME, BUT SHOULD HAVE BEGUN WHEN HE HAD ACCRUED $11,250 OF RETIRED PAY. SEE 10 U.S.C. SEC. 687(F) AND 43 COMP.GEN. 402, 406 (1963). HOWEVER, THE ARMY ERRONEOUSLY PAID HIM RETIRED PAY FOR THE PERIOD FEBRUARY 1 THROUGH MAY 31, 1979, TOTALING $2,095.68. IT WAS NOT UNTIL JUNE 1, 1979, THAT THE ARMY BEGAN TO WITHHOLD HIS RETIRED PAY.

AT THE OUTSET, WE DO NOT CONSIDER SERGEANT PAUL TO NOW BE INDEBTED TO THE ARMY FOR THE AMOUNT OF THE RETIRED PAY HE HAS ALREADY RECEIVED. SINCE THE RETIRED PAY WAS ERRONEOUSLY PAID IT CONSTITUTED A DEBT WHICH WAS OUTSTANDING AND OWING AT THE TIME HE FILED, FOR BANKRUPTCY. IT IS OUR VIEW, THEREFORE, THAT SERGEANT PAUL'S DISCHARGE IN BANKRUPTCY SERVED TO RELEASE HIM FROM ANY LEGAL OBLIGATION TO REPAY THIS DEBT.

AS PREVIOUSLY STATED, THE ARMY SHOULD HAVE STARTED TO WITHHOLD SERGEANT PAUL'S RETIRED PAY ON FEBRUARY 1, 1979. THEREFORE, RETIRED PAY PAYMENTS TO HIM SHOULD BE BEGUN WHEN HIS RETIRED PAY ENTITLEMENT BEGINNING FEBRUARY 1, 1979, EQUALS $11,250. SINCE HE HAS BEEN RELIEVED OF LIABILITY FOR REPAYMENT OF THE ERRPNEOUS PAYMENTS MADE TO HIM FOR FEBRUARY THROUGH MAY 1979, THOSE PAYMENTS SHOULD BE TREATED AS THOUGH THEY HAD NEVER BEEN MADE AND THOSE 4 MONTHS SHOULD BE INCLUDED IN THE ABOVE CALCULATION.