Comptroller General Warren to National Housing Administrator
| Decision Date | 08 October 1942 |
| Docket Number | B-28356 |
| Citation | 22 Comp.Gen. 330 |
| Parties | COMPTROLLER GENERAL WARREN TO THE NATIONAL HOUSING ADMINISTRATOR |
| Court | Comptroller General of the United States |
Bankruptcy and civil-service retirement fund moneys in the civil-service retirement and disability fund of a person who at the time of his filing of a petition in bankruptcy, and since, is employed in a position within the purview of the civil retirement act of May 22, 1920, as amended, do not become part of his estate in the bankruptcy proceedings. 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 for administrative consideration whether it is in the interest of the United States to continue in its employment a government employee who refuses to make good a loss to the government resulting from his discharge in bankruptcy.
I have a letter dated August 21, 1942, from the assistant commissioner, federal housing administration, as follows:
In reply refer to: mcp no. 617858, charles and bertha kessler 916 west madison avenue, hyattsville, Maryland.
We have for consideration the case of charles R. Kessler and bertha v. Kessler of 916 west madison avenue, hyattsville, Maryland in which this administration reimbursed the commercial investment trust incorporated of New York, n.Y., because of a claim this institution filed under its contract of insurance with this administration, due to the default of the borrowers on a loan secured under title i regulations of the national housing act.
The note executed in this transaction is dated November 30, 1939. March 2, 1941, the note went into default and subsequently charles R. Kessler filed a petition in bankruptcy and was adjudicated a bankrupt on May 16, 1941. The first meeting of the bankrupt creditors was held June 24, 1941, and Mr Kessler received his discharge on July 8. The last day set for filing objections to the bankrupt's discharge was August 4, 1941. The last date for filing proof of claim against the bankrupt's estate was six months from the date of the first meeting, or December 24, 1941.
The commercial investment trust incorporated filed claim with this administration on this transaction on September 2, 1941 and we reimbursed them on September 25, 1941, at which time all right, title and interest in the note executed by charles and bertha kessler were assigned to the United States of america.
Charles R. Kessler is presently employed by the United States post office department, Washington, D.C., as a clerk and has been employed in that position for approximately 14 years. Eventually Mr. Kessler will be eligible for annuity payments or refund under the civil service retirement act.
In accordance with our policy on October 27, 1941, we informed the civil service commission of our claim against this annuitant and requested that a " set-off" be made should a claim for annuity or refund of deductions be filed by Mr. Kessler.
It is the opinion of Mr. Kessler's attorney that this administration does not hold valid security that would permit a claim against Mr. Kessler's retirement annuity fund, because he contends that the note came into our possession subsequent to the date of Mr. Kessler's discharge in bankruptcy, and also since this obligation was listed in the bankrupt's schedule of liabilities.
In previous cases where an employee is eligible for annuity and the employee has been discharged in bankruptcy, subsequent to the date we reimbursed the financial institution under the regulations of the national housing act, the civil service commission has taken the position that the employee is not relieved from the attachment of his retirement and annuity fund, as this fund is not scheduled by the bankrupt as an asset and cannot be attached for distribution to creditors. The civil service commission does not appear to have an established rule concerning the instant case.
The attached file is therefore referred to you for your consideration and it would be appreciated if a decision would be rendered concerning this administration's right to place a safe-guard on the retirement and annuity fund of Mr. Kessler.
It would appear that the authority to set off the obligation in question rests upon two propositions: (1) that moneys in the retirement fund deducted from the salary, pay, or compensation of an employee pursuant to the civil retirement act of May 22, 1920, as amended, 5 U.S.C. 691, et seq. Do not become part of the bankrupt estate; and (2) in the event said proposition is tenable, that the government possesses a valid and enforceable claim in the amount of its loss against Mr. Kessler at such time as moneys to his credit in the retirement fund become due and payable.
The civil retirement act, as amended by the act of May 29, 1930, 46 Stat. 475, 5 U.S.C. 719, makes compulsory certain deductions from the pay of employees who come within the purview of the act, and requires that the amounts so deducted be deposited into the treasury of the United States to the credit of the "civil-service retirement and disability fund.' refunds prior to retirement are authorized only in the event of absolute separation from the service or transfer to a position not within the purview of the act, and, even then, in the case of employees with 5 or more years of service, only to the extent of amounts deducted prior to January 24, 1942. See 21 Comp.Gen. 1000, 1002, 5 U.S.C. 724, as amended.
Section 18 of the amendatory act of May 29, 1930, 46 Stat. 479, 5 U.S.C. 729, expressly provides that:
None of the moneys mentioned in this chapter shall be assignable, either in law or equity, or be subject to execution, levy, or attachment, garnishment, or other legal process.
It does not appear that Mr. Kessler became separated from the federal service, or had been transferred to a position not within the purview of the civil retirement act, prior to his adjudication as a bankrupt, or since. Such statutory conditions not having been met, he could not have obtained a refund of any part of his retirement deductions. Furthermore, in view of the provision above quoted, he could not have assigned them and they could not have been reached by his creditors under any legal process.
Section 70 (A) of the bankruptcy act, as amended, 11 U.S.C. 110, provides:
The trustee of the estate of a bankrupt * * * shall in turn be vested by operation of law with the title of the bankrupt, as of the date of the filing of the petition in bankruptcy or of the original petition proposing an arrangement or plan under this title, except insofar as it...
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