B-34913, JUNE 21, 1943, 22 COMP. GEN. 1119

B-34913: Jun 21, 1943

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CLAIMS OF THE UNITED STATES AGAINST A BANKRUPT ARE FOR CONSIDERATION AND PAYMENT ALONG WITH OTHER DEBTS OWED BY THE BANKRUPT. A DISCHARGE IN BANKRUPTCY IS A LEGAL RELEASE OF THE BANKRUPT'S OBLIGATIONS TO THE UNITED STATES. WAS INDEBTED TO THE FEDERAL HOUSING ADMINISTRATION. EVEN THOUGH THE DEBT MAY NOT HAVE BEEN DULY SCHEDULED. AMOUNTS TO THE EMPLOYEE'S CREDIT IN THE CIVIL-SERVICE RETIREMENT FUND ARE NOT AVAILABLE FOR SET-OFF AGAINST THE SAID CLAIM. 22 COMP. 1943: I HAVE YOUR LETTER OF MAY 26. IN THE DECISION TO WHICH YOU REFER IT WAS HELD. QUOTING FROM THE SYLLABUS: A DISCHARGE IN BANKRUPTCY OF A GOVERNMENT EMPLOYEE FROM A NOTE SECURING A LOAN INDEBTEDNESS TO A PRIVATE CREDITOR WHICH WAS LISTED ON THE BANKRUPT'S SCHEDULE OF LIABILITIES AND ASSIGNED TO THE UNITED STATES SUBSEQUENT TO THE FILING OF THE PETITION IN BANKRUPTCY UPON PAYMENT BY THE FEDERAL HOUSING ADMINISTRATION OF ITS OBLIGATION AS INSURER OF THE LOAN AFFORDS THE BANKRUPT A COMPLETE LEGAL DEFENSE TO ANY ACTION BROUGHT BY THE UNITED STATES TO RECOVER SUCH DEBT.

B-34913, JUNE 21, 1943, 22 COMP. GEN. 1119

BANKRUPTCY AND CIVIL-SERVICE RETIREMENT FUND SUBJECT TO THE PRIORITY GRANTED BY SECTION 3466, REVISED STATUTES, AND THE PROVISIONS OF THE BANKRUPTCY ACT, AS AMENDED, EXEMPTING FROM DISCHARGE TAXES AND OTHER SPECIFIC DEBTS, CLAIMS OF THE UNITED STATES AGAINST A BANKRUPT ARE FOR CONSIDERATION AND PAYMENT ALONG WITH OTHER DEBTS OWED BY THE BANKRUPT, AND A DISCHARGE IN BANKRUPTCY IS A LEGAL RELEASE OF THE BANKRUPT'S OBLIGATIONS TO THE UNITED STATES. WHERE A GOVERNMENT EMPLOYEE, AT THE TIME OF THE FILING OF A PETITION IN BANKRUPTCY, WAS INDEBTED TO THE FEDERAL HOUSING ADMINISTRATION, AND, EVEN THOUGH THE DEBT MAY NOT HAVE BEEN DULY SCHEDULED, THE ADMINISTRATION HAD ACTUAL NOTICE OR KNOWLEDGE OF THE PROCEEDINGS IN BANKRUPTCY, THE EMPLOYEE'S DISCHARGE IN BANKRUPTCY OPERATES TO BAR ENFORCEMENT OF THE CLAIM, SO THAT, UPON SEPARATION FROM THE SERVICE AND APPLICATION FOR REFUND OF RETIREMENT DEDUCTIONS, AMOUNTS TO THE EMPLOYEE'S CREDIT IN THE CIVIL-SERVICE RETIREMENT FUND ARE NOT AVAILABLE FOR SET-OFF AGAINST THE SAID CLAIM. 22 COMP. GEN. 330, AMPLIFIED.

COMPTROLLER GENERAL WARREN TO THE PRESIDENT, UNITED STATES CIVIL SERVICE COMMISSION, JUNE 21, 1943:

I HAVE YOUR LETTER OF MAY 26, 1943, REFERRING TO THE HOLDING IN OFFICE DECISION 22 COMP. GEN. 330, RELATING TO DISCHARGES IN BANKRUPTCY OF GOVERNMENT EMPLOYEES AND REQUESTING A DECISION AS TO WHETHER A CLAIM BY THE FEDERAL HOUSING ADMINISTRATION MAY BE RECOGNIZED AGAINST THE AMOUNT IN THE CIVIL SERVICE RETIREMENT FUND TO THE CREDIT OF A FORMER EMPLOYEE WHO HAS BEEN SEPARATED FROM THE SERVICE AND HAS APPLIED FOR REFUND OF RETIREMENT DEDUCTIONS.

IN THE DECISION TO WHICH YOU REFER IT WAS HELD, QUOTING FROM THE SYLLABUS:

A DISCHARGE IN BANKRUPTCY OF A GOVERNMENT EMPLOYEE FROM A NOTE SECURING A LOAN INDEBTEDNESS TO A PRIVATE CREDITOR WHICH WAS LISTED ON THE BANKRUPT'S SCHEDULE OF LIABILITIES AND ASSIGNED TO THE UNITED STATES SUBSEQUENT TO THE FILING OF THE PETITION IN BANKRUPTCY UPON PAYMENT BY THE FEDERAL HOUSING ADMINISTRATION OF ITS OBLIGATION AS INSURER OF THE LOAN AFFORDS THE BANKRUPT A COMPLETE LEGAL DEFENSE TO ANY ACTION BROUGHT BY THE UNITED STATES TO RECOVER SUCH DEBT, THUS PRECLUDING THE EARMARKING OF THE MONEYS TO THE CREDIT OF THE EMPLOYEE IN THE CIVIL-SERVICE RETIREMENT FUND FOR THE PURPOSE OF SETTING OFF THE AMOUNT OF THE GOVERNMENT'S LOSS AGAINST MONEYS TO BE PAID FROM SUCH FUND AT SOME FUTURE DATE.

IT IS STATED IN YOUR SUBMISSION THAT IN THE CASE NOW BEFORE YOUR COMMISSION FOR CONSIDERATION THE EMPLOYEE WAS INDEBTED TO THE FEDERAL HOUSING ADMINISTRATION AT THE TIME PETITION IN BANKRUPTCY WAS FILED; THAT THE FORMER EMPLOYEE LISTED AN ITEM " FEDERAL HOUSING, WASHINGTON, D.C. $545.00" IN HIS SCHEDULES, AND THAT HE WAS SUBSEQUENTLY DISCHARGED IN BANKRUPTCY BY THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF CALIFORNIA.

WHILE IT IS TRUE THAT IN THE DECISION IN 22 COMP. GEN. 330, THE INDEBTEDNESS INVOLVED WAS ASSIGNED TO THE UNITED STATES SUBSEQUENT TO THE FILING OF THE PETITION IN BANKRUPTCY, WHEREAS HERE THE INDEBTEDNESS TO THE UNITED STATES EXISTED AT THE TIME THE PETITION WAS FILED, YET, FOR THE REASONS HEREINAFTER STATED, THAT FACT WOULD NOT APPEAR TO COMPEL A CONCLUSION CONTRARY TO THAT REACHED IN SAID DECISION. IT MAY BE STATED THAT, SUBJECT TO THE PRIORITY GRANTED BY SECTION 3466, REVISED STATUTES, AND THE PROVISIONS OF THE BANKRUPTCY ACT EXEMPTING FROM DISCHARGE TAXES AND OTHER SPECIFIC DEBTS, CLAIMS OF THE UNITED STATES AGAINST A BANKRUPT ARE FOR CONSIDERATION AND PAYMENT ALONG WITH OTHER DEBTS OWED BY THE BANKRUPT, AND IT IS NOW WELL SETTLED THAT A DISCHARGE IN BANKRUPTCY IS A LEGAL RELEASE OF THE BANKRUPT'S OBLIGATIONS TO THE UNITED STATES. UNITED STATES V. WOOD, 290 F. 109, AFFIRMED 263 U.S. 680; IN RE ANDERSON, 279 F. 525; MCPHEE V. UNITED STATES, 174 PAC. 808; IN RE ALDERSON, 98 F. 588; UNITED STATES V. HAWKINS, 20 F. (2D) 539. SEE, ALSO, SECTION 57 (N) OF THE BANKRUPTCY ACT, AS AMENDED, 52 STAT. 867 (11 U.S.C.A. 93 (N) (, WHICH PROVIDES THAT ALL CLAIMS OF THE UNITED STATES SHALL BE PROVED AND FILED LIKE THOSE OF ANY OTHER CREDITOR.

YOUR REFERENCE TO THE FACT THAT THE BANKRUPT, IN HIS SCHEDULES, LISTED THE INDEBTEDNESS HERE INVOLVED AS DUE " FEDERAL HOUSING, WASHINGTON, D.C.' WOULD SEEM TO SUGGEST A DOUBT AS TO WHETHER THE SAID INDEBTEDNESS WAS DULY SCHEDULED. SECTION 17 OF THE BANKRUPTCY ACT, AS AMENDED, 52 STAT. 851 (11 U.S.C.A. 35), PROVIDES, IN PERTINENT PART, THAT:

A DISCHARGE IN BANKRUPTCY SHALL RELEASE A BANKRUPT FROM ALL OF HIS PROVABLE DEBTS, WHETHER ALLOWABLE IN FULL OR IN PART, EXCEPT SUCH AS (1) ARE DUE AS A TAX LEVIED BY THE UNITED STATES, OR ANY STATE, COUNTY, DISTRICT, OR MUNICIPALITY; * * * (3) HAVE NOT BEEN DULY SCHEDULED IN TIME FOR PROOF AND ALLOWANCE, WITH THE NAME OF THE CREDITOR, IF KNOWN TO THE BANKRUPT, UNLESS SUCH CREDITOR HAD NOTICE OR ACTUAL KNOWLEDGE OF THE PROCEEDINGS IN BANKRUPTCY * * *.

IT HAS BEEN HELD THAT, UNDER THE ABOVE PROVISION (3) OF THE LAW, IF A CLAIM HAS BEEN DULY SCHEDULED, THE FAILURE OF THE CREDITOR TO BE SERVED WITH NOTICE OF THE PROCEEDINGS OR THE LACK OF ACTUAL KNOWLEDGE THEREOF ON HIS PART DOES NOT PREVENT THE OPERATION OF THE DISCHARGE AGAINST THE DEBT ( TRAVIS V. SAMS, 99 S.E. 239); AND, CONVERSELY, NOTWITHSTANDING THE DEBT HAS NOT BEEN DULY SCHEDULED IN ACCORDANCE WITH THE REQUIREMENTS OF THE BANKRUPTCY ACT, IT IS DISCHARGED IF THE CREDITOR HAS NOTICE OR ACTUAL KNOWLEDGE OF THE PROCEEDINGS IN BANKRUPTCY. VILLAR AND CO. V. CONDE, 30 F. (2D) 588; IN RE BISHOP, 13 F.1SUPP. 905. WHILE THE MISNOMER OF THE CREDITOR IN THE PRESENT MATTER MIGHT BE GROUND FOR HOLDING THAT THE DEBT WAS NOT "DULY SCHEDULED"--- SEE THE CASES ANNOTATED IN 11 U.S.C.A. 35, NOTE 147, PAGE 193--- CONSIDERATION OF THAT QUESTION IS RENDERED UNNECESSARY SINCE INFORMAL INQUIRY OF THE FEDERAL HOUSING ADMINISTRATION ELICITS THE INFORMATION THAT NOTICE OF THE BANKRUPTCY PROCEEDINGS HERE INVOLVED WAS RECEIVED BY THAT ADMINISTRATION. WHETHER OR NOT A PROOF OF CLAIM WAS EVER FILED IS NOT DISCLOSED, BUT IT HAS BEEN HELD THAT FAILURE OF A CREDITOR TO PROVE HIS CLAIM WILL NOT PREVENT OPERATION OF THE DISCHARGE AS A BAR TO A CLAIM WHICH IS PROVABLE AND WHICH OTHERWISE WOULD BE RELEASED. IN RE CLEAPOR, 16 F.1SUPP. 48; IN RE WOOD 283 F. 565.

IN VIEW OF THE FOREGOING, AND UPON THE BASIS OF THE PRESENT RECORD, IT WOULD APPEAR THAT THE DISCHARGE IN BANKRUPTCY HAS OPERATED TO BAR THE ENFORCEMENT OF THE CLAIM OF THE FEDERAL HOUSING ADMINISTRATION AGAINST THE BANKRUPT, AND, ACCORDINGLY, IT MUST BE HELD THAT THE AMOUNTS TO HIS CREDIT IN THE RETIREMENT FUND ARE NOT AVAILABLE FOR SET OFF AGAINST SAID CLAIM.