By Darren Azman and Michael Galen ( February 6, 2018, 4:10 PM EST) -- A creditor's right to set off a mutual, prepetition debt owed by the creditor to a debtor in bankruptcy is governed by Section 553 of the Bankruptcy Code. That section provides that, with certain limited exceptions, the right to set off is not affected by the debtor's bankruptcy case. In the recently decided case In re Cook Inlet Energy LLC et al.,[1] the bankruptcy court in Alaska held that a creditor's setoff rights apply only to the specific debtor against which the creditor's claims arise. The only exception to the rule, the court found, is if two debtors are substantively consolidated and alter egos of each other. However, consolidation of debts for limited purposes under a bankruptcy plan does not satisfy the exception....
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