Avant v. United States

• Decision Date: 25 September 1958
• Docket Number: No. 2588.,2588.
• Citation: 165 F. Supp. 802
• Parties: Walter L. AVANT, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Eastern District of Virginia

165 F. Supp. 802

Walter L. AVANT, Plaintiff, v. UNITED STATES of America, Defendant.

No. 2588.

United States District Court E. D. Virginia, Norfolk Division.

September 25, 1958.

Louis B. Fine and Howard I. Legum, Norfolk, Va., for plaintiff.

L. S. Parsons, Jr., U. S. Atty., John M. Hollis, Asst. U. S. Atty., Norfolk, Va., for defendant.

WALTER E. HOFFMAN, District Judge.

The issue presented herein is whether Civil Service Retirement funds accumulated to the credit of an employee at the time of bankruptcy of the employee, who subsequently receives a discharge in bankruptcy, may thereafter be used by the United States as a setoff, at the time of retirement or termination of service, in partial satisfaction of an indebtedness due by the employee to the Federal Housing Administration as of the date of bankruptcy, where the indebtedness has been regularly listed in the bankrupt's schedules. This Court holds that such retirement funds may not be thus appropriated by the Government.

Plaintiff, following the termination of his service as a Civil Service employee, made demand on June 28, 1957, upon the United States Civil Service Commission for a refund of his retirement deductions aggregating $2,432.77. Counsel agree that, in the adjustment of sick leave and annual leave, plaintiff is indebted to the Government in the sum of $19.98 for transactions arising subsequent to the bankruptcy proceedings, which amount is properly the subject of setoff, leaving a principal balance due in the sum of $2,412.79. On October 2, 1957, the Commission declined the refund, stating that the funds to plaintiff's credit in the retirement fund were exhausted in partial payment of a claim submitted by the Government to the Commission on March 11, 1957; said claim being in the sum of $3,451.38, arising out of a default in payment of an obligation due to the Federal Housing Administration which was discharged in bankruptcy.

On October 3, 1955, plaintiff filed his voluntary petition in bankruptcy, and was adjudicated bankrupt on the same day. Under Schedule A-4, "Liabilities on Notes or Bills Which Ought to be Paid by the Drawers, Makers, Acceptors, or Indorsers", there appears a listing of certain creditors including "Federal Housing Administration, Washington, D. C." While the amount listed as due to F. H. A. is somewhat less than the amount now contended by the Government, counsel do not urge that plaintiff was indebted to F. H. A. on more than one account. The F. H. A. does not concede that it received any notice of the bankruptcy proceedings, but the practice in the office of the Referee in Bankruptcy is to place any undelivered envelopes in the case file and no envelope addressed to Federal Housing Administration appears therein¹. The presumption is that the notice was mailed and received. A notice of first meeting of creditors and order to show cause was mailed on October 5, 1955, returnable on October 19, 1955. Subsequently, on October 21, 1955, a separate notice was mailed to creditors fixing December 15, 1955, as the last day for filing objections to the discharge. The record reflects that the discharge in bankruptcy was granted on October 24, 1956, more than one year after the notices had been mailed to creditors.

At the time plaintiff was adjudicated a bankrupt on October 3, 1955, the sum of $1,837.41 had accumulated in the retirement fund. This item need not have been listed as an asset in the bankruptcy schedules, and admittedly is not subject to withdrawal until the employee's service is terminated by retirement or otherwise.

Contrary to a decision of the Comptroller General dated June 21, 1943 (22 Comp.Gen. 1119) wherein it is stated that a discharge in bankruptcy precludes the use of Civil Service retirement funds as a setoff toward a Federal Housing Administration indebtedness, the Civil Service Commission now invites a ruling by the Court. The United States filed a motion for summary judgment, but later counsel agreed that the matter could be considered upon the basis of the pleadings, affidavits, and testimony of one witness. The Government does not insist that a debt due the Federal Housing Administration is not properly dischargeable in bankruptcy—it merely states that it has the inherent power to setoff claims held against its debtors, and that the discharge in bankruptcy is unavailable as a sword to compel the Government to abandon the security in its hands.

Under the law, the retirement moneys are nonassignable, either in law or equity, and are not subject to execution, levy, attachment, garnishment, or other legal process. 5 U.S.C. § 2265 (formerly 5 U.S.C. § 729), 70 Stat. 758.

Section 68 of the Bankruptcy Act, 11 U.S.C. § 108, relating to the...