Wood v. United States Department of Housing and Urban Development, No. 20-1161 (4th Cir. 2021)Annotate this Case
To finance the purchase of a home in 2008, Wood borrowed $39,739.44. About six years later, Wood defaulted, with an unpaid balance of $23,066.66. The Department of Housing and Urban Development (HUD), which had insured the loan, paid that amount and sent Wood a Notice of Intent to Collect by Treasury Offset, using income tax overpayments. In 2017, Treasury offset Wood's federal tax overpayment of $9,961 toward the debt. In 2018, Wood filed a Chapter 7 bankruptcy petition, opting to exempt any 2017 income tax overpayment. Treasury nonetheless offset a $6,086 overpayment.
Wood requested that the bankruptcy court void HUD’s lien and order a return of the $6,086. The court concluded that a debtor’s tax overpayment becomes property of the estate, protected by the stay, and the debtor may exempt the overpayments and defeat a governmental creditor’s right to setoff. The district court agreed, stating that because Treasury had knowingly intercepted the overpayments after the Woods filed for bankruptcy, equity did not favor granting permission to seek relief from the automatic stay.
The Fourth Circuit remanded. The protections typically accorded properly exempted property under 11 U.S.C. 522(c) do not prevail over the government’s 26 U.S.C. 6402(d) right to offset mutual debts. Although the government exercised that right before requesting relief from the automatic stay, there is no reason to abridge the government’s 11 U.S.C. 362(d) right to seek the stay’s annulment.