The opinion
FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
DARRIN LENALD COOPER, No. 24-1084
BAP No.
Appellant,
1:23-bk-1098
v.
OPINION
SOCIAL SECURITY
ADMINISTRATION,
Appellee.
Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Frederick Philip Corbit, Julia W. Brand, and Gary A.
Spraker, Bankruptcy Judges, Presiding
Argued and Submitted February 11, 2025
Seattle, Washington
Filed March 20, 2025
Before: Ronald M. Gould and Jacqueline H. Nguyen,
Circuit Judges, and Richard D. Bennett, Senior District
Judge. *
*
The Honorable Richard D. Bennett, United States Senior District Judge
for the District of Maryland, sitting by designation.
2 COOPER V. SSA
Opinion by Judge Bennett
SUMMARY **
Bankruptcy
The panel (1) reversed the Bankruptcy Appellate Panel’s
decision affirming the bankruptcy court’s order denying a
debtor’s motion to hold the Social Security Administration
in contempt for violating the bankruptcy discharge
injunction by adjusting the debtor’s monthly benefits to
recoup an overpayment of Social Security Disability
Insurance benefits; and (2) remanded to the Bankruptcy
Appellate Panel with instructions to remand to the
bankruptcy court for further proceedings.
Through its own error, the Social Security
Administration overpaid the debtor before his Chapter 7 no-
asset discharge in bankruptcy. Two years after his
discharge, it recouped the overpayment debt by reducing his
monthly benefits.
The panel held that the equitable recoupment doctrine
allows recovery of a discharged debt where the creditor and
debtor share countervailing obligations that meet the logical
relationship test. Under that test, obligations are logically
related when they arise from the same transaction or
occurrence such that recoupment is equitable. The panel
clarified that the logical relationship test demands
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
COOPER V. SSA 3
consideration of the equities, including the purpose of the
Bankruptcy Code, in each individual case. Agreeing with
other circuits, the panel held that recoupment is
impermissible where, as here, the Social Security
Administration seeks to recoup overpayments from a
bankrupt beneficiary who engaged in no malfeasance.
COUNSEL
Marc S. Stern (argued), Seattle, Washington, for Appellant.
Kyle A. Forsyth (argued), Assistant United States Attorney;
Tessa M. Gorman, United States Attorney; United States
Department of Justice, Office of the United States Attorney,
Seattle, Washington; for Appellee.
Thomas M. Mayer (argued) and Nancy Bello, Kramer Levin
Naftalis & Frankel LLP, New York, New York, for Amici
Curiae National Consumer Bankruptcy Rights Center and
National Association for Consumer Bankruptcy.
4 COOPER V. SSA
OPINION
BENNETT, Senior District Judge:
This appeal arises at the intersection of the Bankruptcy
Code, 11 U.S.C. § 101 et seq., and the Social Security Act,
42 U.S.C. § 401 et seq. Under the Social Security Act, 42
U.S.C. §§ 401, 423, the federal government operates a
Federal Disability Insurance Trust Fund to provide Social
Security Disability Insurance (“SSDI”) benefits to
qualifying individuals. Id. §§ 401(b), (h); 423. In
conjunction with the old-age benefits provision of the Social
Security Act, Congress established SSDI benefits “to
provide workers and their families with basic protection
against hardships created by the loss of earnings due to
illness or old age.” Mathews v. De Castro, 429 U.S. 181,
185–86 (1976). The Bankruptcy Code, which seeks to
“grant a ‘fresh start’ to the ‘honest but unfortunate debtor,’”
reflects a similar concern for the effects of financial
hardship. Marrama v. Citizens Bank, 549 U.S. 365, 367
(2007) (quoting Grogan v. Garner, 498 U.S. 279, 286–87
(1991)). Thus, discharge in bankruptcy enjoins creditors
from collecting pre-filing debts. 11 U.S.C. § 524(a)(2).
As an SSDI beneficiary who received a no-asset
discharge in bankruptcy in 2020, Appellant Darrin Lenald
Cooper (“Cooper”), received protections under both the
Social Security Act and the Bankruptcy Code. Through its
own error, the Social Security Administration overpaid
Cooper before his discharge in bankruptcy. It then recouped
the overpayment debt by reducing his monthly SSDI benefits
two years after his discharge.
An issue of first impression in our Circuit, we consider
whether the Social Security Administration (“SSA”) may
COOPER V. SSA 5
recoup SSDI benefits it overpaid, through its own error, from
a beneficiary who has already received a no-asset discharge
in bankruptcy. Recoupment is an equitable doctrine that
predates the Bankruptcy Code and allows recovery of a
discharged debt where the creditor and debtor share
countervailing obligations that meet our logical relationship
test. See, e.g., Sims v. United States Dep't of Health &
Human Servs. (In re TLC Hosps., Inc.), 224 F.3d 1008, 1011
(9th Cir. 2000). Under that test, obligations are logically
related when they arise from the same transaction or
occurrence such that recoupment is equitable. Id. at 1011,
1014.
In this case, the bankruptcy court and Bankruptcy
Appellate Panel (“BAP”) determined that recoupment was
permissible because the overpayment and ongoing
entitlement to benefits were logically related: they arose
from the same disability period, disability, trust fund, and
statutory scheme. The BAP effectively ended its inquiry
there, suggesting that the logical relationship test precluded
consideration of the equities, such as Cooper’s lack of fault
in SSA’s overpayment. SSA urges us to adopt this view on
appeal. We decline to do so.
We clarify that the logical relationship test has never
precluded consideration of the equities. Indeed, the logical
relationship test requires courts to evaluate such
considerations to ensure that recoupment is equitable in each
case. Aligning with our sister courts that have considered
similar issues, we hold that recoupment is impermissible
where, as here, SSA seeks to recoup overpayments from a
bankrupt beneficiary who engaged in no malfeasance.
Accordingly, we REVERSE and REMAND for further
proceedings.
6 COOPER V. SSA
BACKGROUND
An understanding of this appeal requires an explanation
of the Bankruptcy Code, the Social Security Act, and the
facts underlying Cooper’s case.
I. Bankruptcy Code
“The principal purpose of the Bankruptcy Code is to
grant a ‘fresh start’ to the ‘honest but unfortunate debtor.’”
Marrama, 549 U.S. at 367 (quoting Grogan, 498 U.S. at
286–87). Bankruptcy offers multiple paths by which
individuals may seek to overcome debt. “[C]hapter 7 of the
Bankruptcy Code, which governs liquidations, embodies
two ideals: (1) giving the individual debtor a fresh start, by
giving him a discharge of most of his debts; and
(2) equitably distributing a debtor’s assets among competing
creditors.” Sherwood Partners, Inc. v. Lycos, Inc., 394 F.3d
1198, 1203 (9th Cir. 2005). Accordingly, Chapter 7 allows
a debtor to “discharge . . . prepetition debts following the
liquidation of the debtor’s assets by a bankruptcy trustee,
who then distributes the proceeds to creditors.” Marrama,
549 U.S. at 367; see also 11 U.S.C. § 727 (defining Chapter
7 discharge).
Discharge under 11 U.S.C. § 727 “releases the debtor
from personal liability for her pre-bankruptcy debts,” Boeing
N. Am., Inc. v. Ybarra (In re Ybarra), 424 F.3d 1018, 1022
(9th Cir. 2005), and enjoins “commencement or continuation
of an action, the employment of process, or an act, to collect,
recover, or offset any such debt as a personal liability of the
debtor[,]” 11 U.S.C. § 524(a)(2). The Bankruptcy Code
defines “debt” as a “liability on a claim,” 11 U.S.C.
§ 101(12), and “claim” as “a right to payment,” Id.
COOPER V. SSA 7
§ 101(5)(A). 1 In a “no-asset” Chapter 7 bankruptcy, debts
are discharged even if a creditor does not receive notice of
the bankruptcy filing. White v. Nielsen (In re Nielsen), 383
F.3d 922, 926–27 (9th Cir. 2004). Such discharge despite
lack of notice reflects that “filing a claim is meaningless and
worthless in a no-assets case.” Id. at 927.
II. Social Security Act
Under the Social Security Act, 42 U.S.C. § 401 et seq.,
the federal government operates a Federal Disability
Insurance Trust Fund (“Trust Fund”) to provide SSDI
payments to beneficiaries. Id. §§ 401(b), (h); 423. Workers
finance the Trust Fund by paying social security taxes, which
are invested in United States government securities and
deposited into the General Fund of the Treasury. Id.
§ 401(b); BARRY F. HUSTON, CONG. RSCH. SERV., RL33028,
SOCIAL SECURITY: THE TRUST FUNDS 1 (2024). Social
Security income is then accounted for in trusts divided
according to SSDI benefits and retirement benefits, and SSA
1
As fully defined under 11 U.S.C. § 101(5), a claim is:
(A) right to payment, whether or not such right is
reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or
unsecured; or
(B) right to an equitable remedy for breach of
performance if such breach gives rise to a right to
payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed,
secured, or unsecured.
“Congress intended by this language to adopt the broadest available
definition of ‘claim.’” Johnson v. Home State Bank, 501 U.S. 78, 83
(1991).
8 COOPER V. SSA
draws from the Trust Fund to distribute monthly SSDI
benefits. BARRY F. HUSTON, CONG. RSCH. SERV., supra, at
3; 42 U.S.C. §§ 401(a), (b). Workers’ tax contributions to
the Trust Fund create their eligibility for benefits by earning
them credits toward future benefits. 2 U.S. SOC. SEC.
ADMIN., PUBL’N NO. 05-10072, HOW YOU EARN YOUR
CREDITS 1–3 (2025). To receive SSDI benefits, individuals
must establish their specific eligibility via an application
process. 42 U.S.C. § 423(a).
SSA determines an SSDI applicant’s entitlement to
payment in three stages: (1) SSA determines the individual’s
eligibility for SSDI benefits; (2) SSA determines the
individual’s primary insurance amount; and (3) SSA
determines the individual’s correct monthly payment. In the
first stage, applicants generally qualify for SSDI benefits if
they meet the legal definition of “disabled,” are “fully
insured,” and have earned sufficient credits based on
covered earnings in the years preceding their application.
See 20 C.F.R. §§ 404.110, 404.130, 404.132 (explaining
required number of credits); 42 U.S.C. § 415 (explaining
determination of monthly benefits amount). For SSDI
benefits, the Social Security Act defines disability as
blindness or “inability to engage in any substantial gainful
activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death
or which has lasted or can be expected to last for a
2
In 2025, for example, individuals receive one credit for each $1,810.00
they earn, up to a maximum of four credits each year. U.S. SOC. SEC.
ADMIN., PUBL’N NO. 05-10072, HOW YOU EARN YOUR CREDITS 1–3
(2025).
COOPER V. SSA 9
continuous period of not less than 12 months[.]” 3 42 U.S.C.
§§ 423(d)(1)(A), (B). To be fully insured, an applicant must
have earned at least one credit per year since turning 22 years
old. See 20 C.F.R. § 404.110. An applicant has sufficient
credits for SSDI benefits if he has earned 20 credits for the
10 years immediately preceding his disability. U.S. SOC.
SEC. ADMIN., PUBL’N NO. 05-10072, supra, at 3.
After an individual has established eligibility for SSDI
benefits, SSA determines his “primary insurance amount,”
which is his monthly benefits amount without adjustments.
See 20 C.F.R. § 404.212. An individual’s primary insurance
amount is set by a formula that considers his average
monthly earnings over a specific number of years based on
his present age and the age at which he became disabled. 20
C.F.R. §§ 404.211, 404.280–404.287. Generally, the
formula indexes an individual’s social security earnings after
1950 and averages them “over the period of time [the
applicant] can reasonably have been expected to have
worked in employment or self-employment covered by
social security.” Id. § 404.211(a).
Finally, in the last stage of the entitlement process, SSA
determines the beneficiary’s correct monthly payment. This
stage requires SSA to consider other benefits—including
workers’ compensation or other forms of Social Security
payments—that the beneficiary has received. 42 U.S.C.
§ 424a(a)(2)(B); 20 C.F.R. § 404.408. If a beneficiary’s
workers’ compensation and SSDI benefits together total
more than eighty percent of his earnings before he became
disabled, SSA must reduce his monthly SSDI payments so
3
The parties do not dispute that Cooper meets the definition of
“disabled” under the Social Security Act.
10 COOPER V. SSA
that the total benefits amount falls below the eighty-percent
threshold. 42 U.S.C. § 424a(a)(5).
Once SSA has completed every stage of the entitlement
process, an SSDI beneficiary is entitled to receive monthly
benefits payments in the correct monthly payment amount. 4
Such entitlements are subject to periodic review, and SSA
“must evaluate [the beneficiary’s] impairment(s) from time
to time to determine if [he is] still eligible for payments
based on disability.” 20 C.F.R. § 416.989. Additionally,
Section 404 of the Social Security Act requires SSA to
recover or adjust benefits “[w]henever the Commissioner of
Social Security finds that more or less than the correct
amount of payment has been made to any person under this
subchapter . . . .” 42 U.S.C. § 404(a)(1); see also Sullivan v.
Everhart, 494 U.S. 83, 90 (1990) (acknowledging Social
Security Act mandates recovery of prior overpayments).
Where a person has been overpaid, SSA must recover those
benefits by (1) decreasing the person’s benefits payment;
(2) requiring the person to refund the amount received in
excess; (3) decreasing any payment payable to that person;
(4) reducing tax refunds to recover the overpayment; or
(5) utilizing any combination of these four methods. 42
U.S.C. § 404(a)(1)(A). A beneficiary subject to recovery of
overpaid benefits under 42 U.S.C. § 404 may request relief
based on financial need. See 20 C.F.R. § 404.502(c)(1)
(permitting significant need-based reductions in amount of
monthly reduction of benefits).
4
Monthly benefits payments are paid in “the month following the month
for which they are due.” U.S. SOC. SEC. ADMIN., PUBL’N NO. 05-10029,
DISABILITY BENEFITS 9 (2025). For example, beneficiaries receive the
benefits due for the month of July in the month of August. Id.
COOPER V. SSA 11
Beneficiaries who have filed for bankruptcy receive
protections under both the Social Security Act and the
Bankruptcy Code. Specifically, 42 U.S.C. § 407 protects
future benefits payments from creditors in bankruptcy, and
the bankruptcy discharge injunction precludes SSA from
collecting discharged debts. 11 U.S.C. § 524(a)(2); see also
Bilyeu v. Morgan Stanley Long Term Disability Plan, 683
F.3d 1083, 1093 (9th Cir. 2012) (“The purpose of the
exemption created by Congress in 42 U.S.C. § 407 is to
protect social security beneficiaries from creditors’ claims.”
(quoting Dionne v. Bouley, 757 F.2d 1344, 1355 (1st Cir.
1985))). SSA’s Program Operations Manual System
(“POMS”) provides nonbinding guidance to SSA employees
and instructs that, even in a no-asset bankruptcy in which
SSA did not receive notice, “the bankruptcy judgment will
be binding on SSA with repayment (if any) limited to the
terms of the discharge order unless the Office of General
Counsel (OGC) is successful in objecting to the discharge.”
U.S. SOC. SEC. ADMIN., GN 02215.230, RESULT OF
BANKRUPTCY PROCEEDINGS – PC PROCEDURE (2023). These
protections mirror the Bankruptcy Code’s “fresh start”
policy by seeking to protect a debtor’s post-bankruptcy SSDI
benefits from creditors. See HSBC Bank USA, Nat’l Ass’n
v. Blendheim (In re Blendheim), 803 F.3d 477, 485 (9th Cir.
2015) (discussing purpose of Chapter 7 bankruptcy).
III. Cooper’s Case
On March 26, 2007, Cooper suffered a disabling injury
while working for Boeing Company in Washington. Due to
his resulting disability, Cooper began receiving gross
monthly workers’ compensation payments of at least
$4,862.25 in March 2015. In May 2017, without the
assistance of counsel, Cooper applied for SSDI benefits
based on his disability. In his application, Cooper
12 COOPER V. SSA
mistakenly reported that he had applied for but had not yet
received workers’ compensation benefits. SSA denied
Cooper’s application, and he hired counsel to appeal the
denial.
On April 30, 2019, an administrative law judge found
Cooper eligible for SSDI benefits, subject to possible
workers’ compensation offset provisions, because he was
fully disabled within the definition of 42 U.S.C. § 1382(a).
On May 1, 2019, still represented by counsel from his
appeal, Cooper submitted a Workers’ Compensation/Public
Disability Benefit Questionnaire (“Questionnaire”) to the
Social Security Field Office in Everett, Washington
(“Everett Field Office”). The submitted Questionnaire
disclosed that and accurately detailed that Cooper was
receiving workers’ compensation payments. Nevertheless,
Everett Field Office employees failed to properly record his
workers’ compensation benefits in SSA’s system.
Relying in part on the improperly processed
Questionnaire, SSA then determined Cooper’s monthly
payment, including any retroactive benefits owed. On May
10, 2019, SSA mailed Cooper a Notice of Award (“Notice”)
informing him that he was entitled to SSDI benefits of
approximately $2,000 per month beginning in May 2019. 5
The Notice disclosed that Cooper was also entitled to
retroactive SSDI benefits dating back to May 2016 and
detailed the process by which SSA would calculate the
retroactive benefits owed. The Notice then explained that
5
Beginning on June 16, 2019, the State of Washington reduced
Cooper’s workers’ compensation benefits to reflect his receipt of Social
Security benefits. Under the adjusted workers’ compensation payment
rate, Cooper received monthly workers’ compensation payments of
$3,849.11.
COOPER V. SSA 13
SSA would hold the SSDI benefits accrued between May
2016 and April 2019 pending its determination of whether
Cooper had received Supplemental Security Income benefits
during that period such that his SSDI benefits should be
reduced.
The Notice also stated that Cooper’s SSDI award may be
reduced if he had received workers’ compensation benefits.
The Notice advised: “At that time, you may have to pay back
any Social Security benefits that you were not due. Please
let us know the decision on the [workers’ compensation]
claim right away.” In August 2019, SSA disbursed
$67,335.50 to Cooper, representing $73,355.50 in
retroactive SSDI benefits less $6,000 withheld and paid
directly to Cooper’s counsel during his appeal. Because
SSA previously failed to correctly record Cooper’s workers’
compensation benefits in its system, SSA did not account for
Cooper’s workers’ compensation benefits when calculating
the retroactive SSDI benefits. As a result, this retroactive
benefits payment contained $73,112.90 in overpaid SSDI
benefits.
In July 2020, Cooper filed for a no-asset Chapter 7
bankruptcy. At that time, neither Cooper nor SSA was aware
that he had received more than $73,000 in overpaid benefits
in August 2019. Because Cooper was unaware of the
overpayment, he did not schedule SSA as a creditor in his
bankruptcy, and SSA did not receive notice of his case or its
discharge. The Trustee issued a report of no distribution and
closed the case without setting a time for filing proof of
claim. On October 21, 2020, Cooper received a discharge of
his debts, including unlisted debts, under 11 U.S.C. § 727.
See In re Nielsen, 383 F.3d at 926–27.
14 COOPER V. SSA
In November 2020, approximately two weeks after
Cooper’s bankruptcy case was discharged, SSA sent Cooper
a letter requesting information about his workers’
compensation benefits. In response, and consistent with the
Questionnaire he filed with the Everett Field Office on May
1, 2019, Cooper disclosed, once again, that he was receiving
workers’ compensation benefits. Cooper also provided
notice of his bankruptcy and explained that any debts he
might owe SSA were discharged. For the next two years,
Cooper continued to receive his SSDI benefits each month,
subject to cost of living adjustments.
On October 30, 2022, SSA sent Cooper a letter
informing him for the first time that the retroactive benefits
paid to him in August 2019 had included $73,112.90 in
overpaid funds. SSA stated that Cooper had not timely
informed SSA of his workers’ compensation benefits, which
caused SSA to calculate his benefits without accounting for
his workers’ compensation payments. Accordingly, SSA
explained that beginning in January 2023, it would hold back
Cooper’s monthly benefits payments until it had recovered
the overpayment. 6 In the letter, SSA advised Cooper that he
could (1) ask SSA to hold back less than his full monthly
benefit; (2) appeal SSA’s decision regarding the
overpayment; or (3) request a waiver of recovery. Cooper
did not request any form of relief from SSA. 7
6
The letter also explained that SSA would continue to deduct monthly
Medicare premiums from his monthly checks.
7
After the filing of the briefs in Cooper’s appeal before us, Cooper
administratively appealed SSA’s decision regarding the overpayment.
At oral argument, counsel for both parties agreed that SSA had denied
Cooper’s initial appeal, but his case remained pending further
administrative review.
COOPER V. SSA 15
In December 2022, SSA adjusted Cooper’s monthly
payment by $2,498.90, which reduced his overpayment
balance to $70,641.00. In January 2023, SSA began to hold
back Cooper’s monthly payments, and Cooper did not
receive SSDI benefits that month. In response, on January
25, 2023, Cooper’s bankruptcy attorney faxed and mailed to
SSA a copy of Cooper’s discharge order and a letter
explaining that his debt to SSA had been discharged. On
January 31, 2023, SSA informed Cooper’s bankruptcy
attorney that it would not honor the discharge because it had
not received timely notice of the bankruptcy and the
overpayment was not listed in the bankruptcy filing. On
February 14, 2023, SSA notified Cooper that it would
withhold $1,893.00 from his monthly benefits going
forward.
In February 2023, Cooper reopened his bankruptcy and
moved for the bankruptcy court to hold SSA in contempt for
adjusting his monthly benefits in violation of the discharge
injunction. 8 SSA suspended further adjustment of Cooper’s
monthly benefits pending resolution of litigation, and the
bankruptcy court received briefing and heard oral argument
on Cooper’s motion. Cooper contended that any debt to SSA
was discharged regardless of SSA’s notice because debts
owed to creditors in a no-asset bankruptcy are discharged
even when they are not listed in a debtor’s schedules. SSA
argued that it was statutorily required to recover the
overpayment, and offset was proper under the doctrine of
equitable recoupment, which provides an exception to the
discharge injunction.
8
Cooper filed a Motion to Show Cause, which the bankruptcy court
construed as a motion to hold SSA in contempt.
16 COOPER V. SSA
On May 10, 2023, after an initial hearing and
supplemental briefing, the bankruptcy court issued an oral
decision in favor of SSA. The bankruptcy court determined
that equitable recoupment allowed SSA to recover the
discharged SSDI overpayment without violating the
discharge injunction in Cooper’s case. The bankruptcy court
explained that, in the Ninth Circuit, recoupment may apply
to non-contractual entitlements subject to the logical
relationship test. Applying that test, the bankruptcy court
concluded that the statutory scheme supporting Social
Security benefits envisions pre-petition overpayments
logically linked to post-petition entitlements because it
requires SSA to consider an individual’s entire work history,
including pre-petition benefits payments, when determining
SSDI entitlements. The bankruptcy court reasoned that a
“very strong logical relationship” existed because the
countervailing obligations arose from the same entitlement
program and basis for entitlement. The bankruptcy court
suggested, however, that it would be “fair” for the
Government to consider Cooper’s position when addressing
the timing and amount of recoupment.
Cooper timely appealed to the BAP, which affirmed the
bankruptcy court. The BAP explained that the bankruptcy
court had not abused its discretion because the overpayment
and adjustment satisfied the logical relationship test.
Specifically, the BAP determined that the pre-filing
overpayment and post-filing adjustment arose from the same
disability, disability period, statutory scheme, and common
fund. Although the BAP acknowledged Cooper’s argument
that his retention of the overpayment would not offend
equity, it determined that contrary Ninth Circuit law and
Cooper’s failure to utilize remedies within the Social
Security Act precluded ruling in his favor. Finally, the BAP
COOPER V. SSA 17
concluded that the bankruptcy court had properly considered
the equities because it held an evidentiary hearing and
allowed supplemental briefing.
This appeal followed. 9
STANDARD OF REVIEW
We review the BAP’s decision de novo, applying “the
same standard of review that the BAP applied to the
bankruptcy court’s ruling.” Boyajian v. New Falls Corp. (In
re Boyajian), 564 F.3d 1088, 1090 (9th Cir. 2009). The BAP
in this case reviewed the bankruptcy court’s decision for
abuse of discretion. A bankruptcy court abuses its discretion
when it applies the incorrect legal rule or when “its
application of the correct legal standard to the facts was
illogical, implausible, or without support in inferences that
may be drawn from the facts in the record.” USAA Fed. Sav.
Bank v. Thacker (In re Taylor), 599 F.3d 880, 888 (9th Cir.
2010). The scope of the bankruptcy discharge injunction is
a legal issue reviewed de novo. See Palmdale Hills Prop.,
LLC v. Lehman Com. Paper, Inc. (In re Palmdale Hills
Prop.), 654 F.3d 868, 875 (9th Cir. 2011).
DISCUSSION
In this appeal, we consider whether SSA may recoup
overpaid SSDI benefits from a beneficiary who has already
received a discharge in bankruptcy. The equitable doctrine
of recoupment is governed by the logical relationship test,
which asks whether the countervailing obligations at issue
arose from the same transaction or occurrence such that
9
Amici curiae National Consumer Bankruptcy Rights Center and
National Association of Consumer Bankruptcy Attorneys filed an
amicus brief in support of Cooper’s position and participated in
argument virtually.
18 COOPER V. SSA
recoupment is equitable. See Gardens Reg’l Hosp. & Med.
Ctr. Liquidating Tr. v. California (In re Gardens Reg’l Hosp.
& Med. Ctr., Inc.), 975 F.3d 926, 934 (9th Cir. 2020). In the
proceedings below, SSA argued that the logical relationship
test permits consideration of only the factual and legal
connections between the countervailing obligations. The
bankruptcy court did not address other equities in its opinion,
and the BAP determined that our precedent precluded
consideration of equitability. On appeal, SSA also argues
that the Social Security Act and Bankruptcy Code can be
harmonized to permit recoupment of overpaid benefits in all
cases. We clarify that the logical relationship test demands
consideration of equitability, including the purpose of the
Bankruptcy Code, in each individual case. We conclude that
recoupment is not permissible where, as here, SSA seeks to
recoup overpayments it made absent any fault by a no-asset
bankrupt beneficiary.
***
As “the ancestor of the compulsory counterclaim,”
recoupment is an equitable doctrine preserved through
judicial decisions. In re Gardens Reg’l Hosp. & Med. Ctr.,
Inc., 975 F.3d at 934 (quoting Coplay Cement Co. v. Willis
& Paul Grp., 983 F.2d 1435, 1440 (7th Cir. 1993)). We have
defined recoupment as “the setting up of a demand arising
from the same transaction as the plaintiff’s claim or cause of
action, strictly for the purpose of abatement or reduction of
such claim.” Newbery Corp. v. Fireman’s Fund Ins. Co., 95
F.3d 1392, 1399 (9th Cir. 1996) (quoting 4 Collier on
Bankruptcy ¶ 553.03, at 553–15 (15th ed. 1995) (emphasis
in original)). Recoupment is distinct from setoff, which is
preserved in the Bankruptcy Code and “allows entities that
owe each other money to apply their mutual debts against
each other, thereby avoiding ‘the absurdity of making A pay
COOPER V. SSA 19
B when B owes A.’” Citizens Bank v. Strumpf, 516 U.S. 16,
18 (1995) (quoting Studley v. Boylston Nat’l Bank, 229 U.S.
523, 528 (1913)); see also 11 U.S.C. § 553(a) (“[T]his title
does not affect any right of a creditor to offset a mutual debt
owing by such creditor to the debtor that arose before the
commencement of the case under this title against a claim of
such creditor against the debtor that arose before the
commencement of the case.”). Unlike recoupment, “[t]he
defining characteristic of setoff is that ‘the mutual debt and
claim . . . are generally those arising from different
transactions’” that occurred before the bankruptcy.
Newbery, 95 F.3d at 1398 (alteration and emphasis in
original) (quoting 4 Collier on Bankruptcy, supra ¶ 553.03,
at 553–14).
Although it is never referenced in the Bankruptcy Code,
recoupment “exempts a debt from the automatic stay [or
discharge] when the debt is inextricably tied up in the post-
petition claim.” In re TLC Hosps., Inc., 224 F.3d at 1011
(quoting United States v. Consumer Health Servs. of Am.,
Inc., 108 F.3d 390, 395 (D.C. Cir. 1997)); see Aetna U.S.
Healthcare, Inc. v. Madigan (In re Madigan), 270 B.R. 749,
754 (BAP 2001) (“Since recoupment is neither a claim nor a
debt, it is unaffected by either the automatic stay or the
debtor’s discharge.”). That is, by seeking only to “defin[e]
the amount owed under a single claim” without raising an
independent claim or debt against the debtor, recoupment
enables a creditor to recover discharged debt that would
otherwise be inaccessible. In re Gardens Reg’l Hosp. &
Med. Ctr., Inc., 975 F.3d at 933 (citing Reiter v. Cooper, 507
U.S. 258, 265 n.2 (1993)); see also In re TLC Hosps., Inc.,
224 F.3d at 1011 (citing 5 Collier on Bankruptcy ¶ 553.10,
at 553–104 (15th ed. rev. 1996)). Recoupment thus carries
extraordinary power to undermine the fundamental purpose
20 COOPER V. SSA
of the Bankruptcy Code by enabling creditors to evade the
discharge injunction and collect discharged debts.
“The limitation of recoupment that balances this
advantage is that the claims or rights giving rise to
recoupment must arise from the same transaction or
occurrence that gave rise to the liability sought to be
enforced by the bankruptcy estate.” In re TLC Hosps., Inc.,
224 F.3d at 1011 (emphasis in original). To determine
whether claims arise from the same transaction or
occurrence, we apply a logical relationship test derived from
Federal Rule of Civil Procedure 13(a). In re Gardens Reg’l
Hosp. & Med. Ctr., Inc., 975 F.3d at 934; see also FED. R.
CIV. P. 13(a)(1)(A). Under that test, we ask “whether the
relevant rights being asserted against the debtor are
sufficiently logically connected to the debtor’s
countervailing obligations such that they may be fairly said
to constitute part of the same transaction.” In re Gardens
Reg’l Hosp. & Med. Ctr., Inc., 975 F.3d at 934 (citing In re
TLC Hosps., Inc., 224 F.3d at 1012; Newbery, 95 F.3d at
1401–02). In bankruptcy, we give “transaction” a broad
construction that may include multiple logically related
occurrences. See Newbery, 95 F.3d at 1403.
We have applied this test by evaluating the “legal and
factual connections between the two countervailing
obligations.” In re Gardens Reg’l Hosp. & Med. Ctr., Inc.,
975 F.3d at 936. We have recognized legal relationships
where claims arose from a common statutory framework or
common fund. See id. at 938 (determining countervailing
obligations’ roots in common fund supported finding logical
relationship); In re TLC Hosps., Inc., 224 F.3d at 1013
(determining countervailing obligations’ roots in statutory
scheme supported finding logical relationship). We have
similarly recognized factual relationships where claims
COOPER V. SSA 21
arose from a contract between the creditor and debtor. See
Newbery, 95 F.3d at 1402–03.
“We have long held that ‘whatever equitable powers
remain in the bankruptcy courts must and can only be
exercised within the confines of’ the Bankruptcy Code.”
Law v. Siegel, 571 U.S. 415, 421 (2014) (quoting Norwest
Bank Worthington v. Ahlers, 485 U.S. 197, 206 (1988)). In
recognition of recoupment’s power to encroach on the fresh
start policy underpinning the Bankruptcy Code, we have
repeatedly cautioned that “courts should apply the
recoupment doctrine in bankruptcy cases only when ‘it
would . . . be inequitable for the debtor to enjoy the benefits
of that transaction without meeting its obligations.’”
Newbery, 95 F.3d at 1403 (quoting Univ. Med. Ctr. v.
Sullivan (In re Univ. Med. Ctr.), 973 F.2d 1065, 1081 (3d
Cir. 1992)); In re Gardens Reg’l Hosp. & Med. Ctr., Inc.,
975 F.3d at 934 (quoting Newbery, 95 F.3d at 1403); In re
TLC Hosps., Inc., 224 F.3d at 1013, 1014 (quoting Newbery,
95 F.3d at 1403; In re Univ. Med. Ctr., 973 F.2d at 1081).
This appeal identifies a potential tension between the logical
relationship test and our precedent that equitable recoupment
should apply only where it prevents a debtor from
inequitably benefitting from a transaction. Before reaching
the facts of Cooper’s case, therefore, we clarify that the
logical relationship test demands consideration of the
fundamental purpose of the bankruptcy code and of the
equities in each case.
I. Logical Relationship Test
Our prior decisions make clear that our logical
relationship test demands consideration of both equitability
and the purpose of the Bankruptcy Code. In Newbery Corp.
v. Fireman’s Fund Insurance Co., 95 F.3d 1392 (9th Cir.
22 COOPER V. SSA
1996), we applied equitable recoupment to a payment
dispute between Chapter 11 debtor Newbery Corporation
and creditor Fireman’s Fund Insurance Company. Id. at
1400. We explicitly provided that “we agree with the Third
Circuit’s observation that courts should apply the
recoupment doctrine in bankruptcy cases only when ‘it
would . . . be inequitable for the debtor to enjoy the benefits
of that transaction without meeting its obligations.’” Id. at
1403 (quoting In re Univ. Med. Ctr., 973 F.2d at 1081). We
then applied recoupment because the parties’ claims arose
from the same contract such that the logical relationship test,
including the equitability standard, was satisfied. Id. at
1402–03. In so holding, we made clear that the logical
relationship test evaluates the legal and factual connections
between the obligations at issue to determine if those
connections are sufficient to make recoupment equitable.
That is, the factual and legal relationships between
countervailing obligations alone cannot justify recoupment
unless they establish that recoupment is equitable on the
facts of the case.
In In re TLC Hospitals, Inc., 224 F.3d 1008 (9th Cir.
2000), we applied the logical relationship test before
separately evaluating the equitable considerations that
supported recoupment. Chapter 7 debtor TLC Hospitals
(“TLC”), which operated hospitals that received Medicare
funding from the United States Department of Health and
Human Services (“HHS”), received overpayments of
$112,061 in HHS Medicare funding in 1993 but was
underpaid by $68,871.71 for Medicare services in 1994. Id.
at 1010. After TLC filed for bankruptcy, HHS sought to
recoup its overpayment by deducting the 1993 overpayments
from the amount it owed TLC for the 1994 underpayments.
Id. According to the statutory scheme governing Medicare,
COOPER V. SSA 23
42 U.S.C. §§ 1395c–1395i-5, TLC received regular
payments reimbursing it for the estimated cost of care to
Medicare patients but agreed to audits to retroactively
account for any under- or overpayment contained in the
estimated reimbursements. Id. at 1011–12 (citing 42 C.F.R.
§ 413.64(f)). We concluded that this statutory framework
established that “Congress rather clearly indicated that it
wanted a provider’s stream of services to be considered one
transaction” such that the countervailing obligations were
logically related. Id. at 1013 (quoting Consumer Health
Servs. of Am., Inc., 108 F.3d at 395). We then separately
concluded that the equities favored recoupment because the
circular system of over- and underpayments was inherent in
the statutory scheme and providers could avoid the
reimbursement scheme by voluntarily ceasing their
provision of Medicare services. Id. at 1014. Our analysis of
the circular statutory payment system as both a legal
connection and an equitable consideration emphasized that
the legal and factual underpinnings that support a logical
relationship must also make recoupment equitable on the
facts of the particular case. See id.
We explicitly acknowledged the role of the equities
when we refused to apply equitable recoupment in a dispute
between an individual creditor and a commercial debtor in
Aalfs v. Wirum (In re Straightline Investments, Inc.), 525
F.3d 870 (9th Cir. 2008). In that case, we declined to reach
the logical relationship test because we determined that the
creditor had continued to lend money to the debtor in
violation of the bankruptcy court’s order. Id. at 876. We
concluded that equitable recoupment could not apply
“because it is an equitable remedy and equitable remedies
may not be invoked to compensate someone who has
engaged in inequitable conduct.” Id. at 882.
24 COOPER V. SSA
More recently, in In re Gardens Regional Hospital and
Medical Center, Inc., 975 F.3d 926 (9th Cir. 2020), we
permitted recoupment of some California Medicaid (“Medi-
Cal”) payments from a hospital in Chapter 11 bankruptcy.
Id. at 929, 931. Gardens Regional Hospital and Medical
Center (“Gardens Regional”) had entered a provider
agreement with Medi-Cal such that it paid Hospital Quality
Assurance Fee (“HQAF”) and fee-for-service payments in
return for Medi-Cal payments for care to Medicaid patients.
Id. at 930–31. HQAF funds were deposited into a High
Quality Assurance Revenue Fund (“HQAR Fund”), and
some HQAR Fund proceeds became supplemental Medi-Cal
payments to hospitals. Id. at 937. Gardens Regional owed
nearly $700,000 in HQAF payments, and California sought
to recoup these funds by withholding more than $4 million
in Medi-Cal payments. Id. at 931. We deemed the logical
relationship test satisfied only as to the Medi-Cal funds
related to HQAF payments, which arose under California’s
circular payment scheme by which hospitals paid into the
same fund from which they received Medi-Cal payments.
Id. at 937. We held that the funds related to unpaid fee-for-
service payments failed the logical relationship test because
no statutory policy linked those payments to the withheld
funds and no direct factual links existed between the
payments and the withheld funds. Id. at 939.
Before reaching the recoupment issue, however, we
cautioned that courts must scrutinize the effect of
recoupment in each case because of its potential to
“undermine the fundamental purpose of” the Bankruptcy
Code. Id. at 934–35 (quoting 5 Collier on Bankruptcy, ¶
553.10[3] (Richard Levin & Henry J. Sommer eds., 16th ed.
2019)). For this reason, we rejected California’s assertion
that there was a sweeping right to setoff in the statute and
COOPER V. SSA 25
regulations governing HQAF payments established a logical
relationship sufficient to permit recoupment. Id. at 939.
Such a broad interpretation of the logical relationship test
would destroy any distinction between setoff and
recoupment and frustrate the fundamental purpose of
bankruptcy proceedings. Id.
We have never held that the logical relationship test
precludes consideration of the equities. Our sister circuits
have addressed the role of equity under the logical
relationship test. The First and Eighth Circuits have
concluded that a distinct balancing-of-the-equities test is
inappropriate because “[t]he ‘same transaction’ analysis
itself inherently embodies competing issues of equity, for the
simple reason that ‘it would be inequitable for [a debtor] to
enjoy the benefits of the same transaction without also
meeting its obligations.’” Terry v. Standard Ins. Co. (In re
Terry), 687 F.3d 961, 964 (8th Cir. 2012) (quoting Slater
Health Ctr., Inc. v. United States (In re Slater Health Ctr.,
Inc.), 398 F.3d 98, 104 (1st Cir. 2005)). The Third Circuit,
however, has rejected a logical relationship test that
collapses equitability into the logical relationship between
the countervailing obligations, explaining “[f]or the
purposes of recoupment, a mere logical relationship is not
enough.” In re Univ. Med. Ctr., 973 F.2d at 1081. The
Second Circuit has favorably cited the Third Circuit’s
holding. See Malinowski v. N.Y. State Dep’t of Labor (In re
Malinowski), 156 F.3d 131, 133 (2d Cir. 1998) (“The Third
Circuit has held that ‘a mere logical relationship is not
enough’ to warrant recoupment in the bankruptcy context.”
(quoting In re Univ. Med. Ctr., 973 F.2d at 1081)). As
detailed above, our prior cases have reiterated the Third
Circuit’s holding regarding the role of equitability in the
logical relationship test and emphasized that recoupment is
26 COOPER V. SSA
appropriate only where it is equitable. See Newbery Corp.,
95 F.3d at 1403 (citing In re Univ. Med. Ctr., 973 F.2d at
1081); In re TLC Hosps., Inc., 224 F.3d at 1014 (citing
Newbery Corp., 95 F.3d at 1403; In re Univ. Med. Ctr., 973
F.2d at 1081).
Our logical relationship test demands consideration of
the equities, including the fundamental purpose of the
Bankruptcy Code. The factual and legal connections that
undergird any logical relationship must be such that
recoupment is equitable on the facts of the specific case and
thus will not improperly encroach on the Bankruptcy Code’s
policy of limiting setoff. See, e.g., In re TLC Hosps., Inc.,
224 F.3d at 1014 (“Sound equitable considerations support
HHS’s right to recoup . . . If a provider in bankruptcy does
not wish to be subject to Medicare’s system of adjustments,
it can cease providing Medicare services.”); In re Gardens
Reg’l Hosp. & Med. Ctr., Inc., 975 F.3d at 938 (“And for the
same reasons, allowing recoupment in the unique context
presented here would not encroach upon, or undermine, the
policy judgments reflected in the Bankruptcy Code’s
limitations on setoffs.”).
We have cautioned that an overly broad interpretation of
the logical relationship test would frustrate the fundamental
purpose of bankruptcy proceedings. In re Gardens Reg’l
Hosp. & Med. Ctr., 975 F.3d at 934–35; see also In re TLC
Hosps., Inc., 224 F.3d at 1012 (The “‘logical relationship’
concept is not to be applied so loosely that multiple
occurrences in any continuous commercial relationship
would constitute one transaction.”). Accordingly, courts
may only apply equitable recoupment where it is equitable
and consistent with the Bankruptcy Code’s “principal
purpose . . . to grant a ‘fresh start’ to the ‘honest but
unfortunate debtor.’” Marrama, 549 U.S. at 367 (quoting
COOPER V. SSA 27
Grogan, 498 U.S. at 286–87). This equitability component
of our logical relationship test prevents recoupment from
improperly defying the purpose of bankruptcy and ensures
that the equitable remedy of recoupment operates within the
limits of the Bankruptcy Code. See Law, 571 U.S. at 421.
Any application of recoupment in Cooper’s case, therefore,
requires consideration of the equities and the purpose of the
Bankruptcy Code.
II. Recoupment of Overpaid SSDI Benefits
In this case, SSA reduced Cooper’s monthly SSDI
benefits in 2023 to recoup an overpayment debt discharged
in Cooper’s bankruptcy two years prior. The bankruptcy
court and the BAP concluded that this reduction constituted
permissible recoupment based on legal connections where
both claims arose from the same statutory scheme and trust
fund and factual connections where both claims arose under
the same disability and disability period. The parties do not
dispute the underlying facts, and the applicability of
equitable recoupment in this case depends on whether their
countervailing claims “arise from the same transaction or
occurrence that gave rise to” Cooper’s ongoing benefits
entitlement such that recoupment is equitable. See In re
Gardens Reg’l Hosp. & Med. Ctr., 975 F.3d at 934 (quoting
In re TLC Hosps., Inc., 224 F.3d at 1011). We conclude that,
despite some legal and factual connections between the
overpayment and Cooper’s SSDI entitlement, the
application of recoupment to his case was inequitable and
incongruous with the fundamental purposes of both the
Bankruptcy Code and the Social Security Act.
***
As an initial matter, we address SSA’s contention on
appeal that this case requires no consideration of the logical
28 COOPER V. SSA
relationship test because both the Bankruptcy Code and the
Social Security Act permit recoupment. As explained above,
there is no dispute that the Bankruptcy Code allows
recoupment across the discharge injunction where the
countervailing obligations meet the logical relationship test.
See Reiter, 507 U.S. at 265 n.2; In re Madigan, 270 B.R. at
754. SSA contends that recoupment of SSDI benefits from
a bankrupt beneficiary is always permissible because it is
consistent with the Bankruptcy Code and the Social Security
Act’s provision requiring SSA to calculate benefits in a
manner that accounts for prior overpayments. See 42 U.S.C.
§ 424a. Such a sweeping right to recoupment would defeat
the fundamental purpose of the Bankruptcy Code and create
a circuit split regarding a practice that the Social Security
Act already proscribes.
As our sister courts have held, the Social Security Act
protects SSDI benefits from recovery in bankruptcy and
contains no language that would exempt SSA from this
limitation. See, e.g., Neavear v. Schweiker (Matter of
Neavear), 674 F.2d 1201, 1205 (7th Cir. 1982); Rowan v.
Morgan, 747 F.2d 1052, 1055 (6th Cir. 1984). The plain
language of the Social Security Act curtails creditors’ ability
to access a debtor’s entitlement to ongoing benefits:
The right of any person to any future payment
under this subchapter shall not be
transferable or assignable, at law or in equity,
and none of the moneys paid or payable or
rights existing under this subchapter shall be
subject to execution, levy, attachment,
garnishment, or other legal process, or to the
COOPER V. SSA 29
operation of any bankruptcy or insolvency
law.
42 U.S.C. § 407(a). As we have repeatedly recognized,
“[t]he purpose of the exemption created by Congress in 42
U.S.C. § 407 is to protect social security beneficiaries from
creditors’ claims.” Bilyeu, 683 F.3d at 1093 (quoting
Dionne, 757 F.2d at 1355); see also Lopez v. Wash. Mut.
Bank, FA, 302 F.3d 900, 903 (9th Cir. 2002) (“Section
407(a) was designed ‘to protect social security beneficiaries
and their dependents from the claims of creditors.’” (quoting
Crawford v. Gould, 56 F.3d 1162, 1166 (9th Cir. 1995))).
SSA’s own internal guidance expressly provides that
discharges in bankruptcy are binding on SSA such that it
may only collect debts in a manner consistent with the terms
of the discharge order. U.S. SOC. SEC. ADMIN., GN
02215.230, supra.
Moreover, the Social Security Act and its derivative
regulations caution that SSA should not adjust benefits in a
manner that defeats the purpose of Title II by “depriv[ing] a
person of income required for ordinary and necessary living
expenses.” 20 C.F.R. § 404.508; see also 42 U.S.C. § 407.
Like the Bankruptcy Code’s discharge injunction, these
Social Security provisions protect a beneficiary’s present
benefits from creditors. See In re Blendheim, 803 F.3d at
486. A rule permitting sweeping recoupment of every pre-
filing benefits overpayment would subvert Section 207 of
the Social Security Act, 42 U.S.C. § 407, by exposing
bankrupt beneficiaries’ entitlements to SSA as a creditor. In
the context of no-asset debtors like Cooper, a sweeping
recoupment right would defeat the purpose of Title II in
contravention of the Social Security Act. See 20 C.F.R.
§ 404.508; 42 U.S.C. § 407. It would be akin to “ascrib[ing]
30 COOPER V. SSA
to Congress an intent to throw the Social Security claimant
a lifeline that it knew was a foot short.” Sullivan v. Hudson,
490 U.S. 877, 890 (1989).
Finally, as an equitable doctrine not mentioned in the
Bankruptcy Code, “recoupment is not subject to all of the
same strictures in bankruptcy as setoff.” In re Gardens Reg’l
Hosp. & Med. Ctr., 975 F.3d at 933; see also Newbery, 95
F.3d at 1399 (“[T]he limits placed on setoff under section
553 generally do not apply to recoupment claims.”).
Recoupment is exempt from the automatic stay and the strict
mutuality and pre-filing requirements that govern
obligations subject to setoff. 10 In re Gardens Reg’l Hosp. &
Med. Ctr., 975 F.3d at 933 (citing Newbery, 95 F.3d at 1398–
99); see also 11 U.S.C. § 362(a)(7) (limiting setoff under the
automatic stay in bankruptcy). To prevent recoupment from
undermining the fundamental protections of bankruptcy, we
have carefully tempered its application by considering its
equitability in each case and rejecting the assertion that a
statutory scheme alone may establish a broad right to
recoupment. In re Gardens Reg’l Hosp. & Med. Ctr., 975
F.3d at 938–40. A sweeping right to recoupment of pre-
filing overpayments from present SSDI benefits entitlements
would remove such protection and expand recoupment in
contravention of the “fresh start” purpose of the Bankruptcy
Code. See In re Blendheim, 803 F.3d at 485.
We reject a sweeping right to recoupment of discharged
Social Security overpayments as inconsistent with the
Bankruptcy Code and the Social Security Act. Equitable
recoupment only comports with the Bankruptcy Code if it is
10
SSA does not argue that setoff applies to the overpayment in this case.
Rather, SSA asserts that “only recoupment from benefits payments both
applies to Cooper’s case and is consistent with the discharge injunction.”
COOPER V. SSA 31
equitable under the logical relationship test. In re Gardens
Reg’l Hosp. & Med. Ctr., 975 F.3d at 934. Under that test,
SSA’s ability to recoup a pre-filing overpayment of benefits
is a fact-specific inquiry that demands consideration of the
equities in each case.
***
Appropriate consideration of the equities in Cooper’s
case reveals that recoupment was not permissible here.
Although limited legal and factual relationships existed
between the overpayment and Cooper’s present benefits
entitlement, recoupment undermined the fundamental
purpose of the Bankruptcy Code and deprived an innocent
beneficiary of his income in violation of the fundamental
purpose of the Social Security Act. The logical relationship
between the overpayment and subsequent adjustment was
not sufficient to overcome these inequities.
A. Factual & Legal Relationships
As the BAP recognized, some factual relationship exists
between Cooper’s pre-petition overpayment and his post-
petition entitlement because they arose from the same
disabling condition during the same disability period. See In
re Madigan, 270 B.R. at 760–61 (noting factual connection
where countervailing obligations arose from the same
disability claim separated by an intervening bankruptcy
petition). Social Security regulations requiring beneficiaries
to provide periodic updates as to their disabling condition
may weaken the factual connection, see 20 C.F.R.
§ 416.989, but in this case, the record does not indicate
whether Cooper updated SSA regarding a change in his
qualifying disability between 2017 and 2023. Thus, it is not
entirely clear whether Cooper’s present entitlement to
benefits is based on a different version of his disability than
32 COOPER V. SSA
his past entitlement. Similarly, SSA’s payment of monthly
benefits based on the individual’s circumstances at the end
of the previous month does not disrupt the factual connection
in this case because the overpayment and entitlement arose
during the same disability period. See U.S. SOC. SEC.
ADMIN., PUBL’N NO. 05-10029, DISABILITY BENEFITS 9
(2025) (explaining benefits are paid in the month after they
are due). That is, because SSA must consider prior
overpayments in calculating benefits, Cooper’s 2023
monthly benefits calculation would still include the 2019
overpayment under the same disability period. See 42
U.S.C. § 404(a)(1).
Similarly, although the legal relationship between the
pre-petition overpayment and the post-petition entitlement is
somewhat tenuous, the overpayment and present entitlement
arose from the same statutory scheme and the same Trust
Fund. As discussed above, the statutory scheme governing
SSDI benefits requires SSA to consider workers’
compensation payments and prior benefits overpayments to
determine a beneficiary’s correct monthly payment. 42
U.S.C. § 424a(a)(2)(B); 20 C.F.R. § 404.408. As we
explained when applying recoupment in In re TLC Hosps.,
Inc., such a statutory requirement suggests that Congress
intended some connection between prior overpayments and
future benefits entitlements. 224 F.3d at 1013 (quoting
Consumer Health Servs. of Am., Inc., 108 F.3d at 395).
Unlike the Medicare statute at issue in In re TLC
Hospitals, Inc., however, the statutory scheme governing
Social Security benefits does not contemplate a continuous
system of estimated payments and subsequent
reimbursements. Compare 42 U.S.C. § 424a(a) (“If for any
month prior to the month in which an individual attains
retirement age . . . (1) such individual is entitled to benefits
COOPER V. SSA 33
under section 423 of this title, and (2) such individual is
entitled for such month to – (A) periodic [workers’
compensation] benefits . . . (B) . . . the total of his benefits
under section 423 of this title for such month . . . shall be
reduced (but not below zero) by the amount by which . . . .”)
with 42 U.S.C. § 1395g(a) (“The Secretary shall periodically
determine the amount which should be paid under this part
to each provider of services with respect to the services
furnished by it, and the provider of services shall be paid, at
such time or times as the Secretary believes appropriate (but
not less often than monthly) and prior to audit . . . the
amounts so determined, with necessary adjustments on
account of previously made overpayments or
underpayments . . . .”).
Where the Medicare statute contemplated intentional
overpayments by authorizing advanced payments based on
estimated costs that were then adjusted to account for any
prior over- or underpayment, 42 U.S.C. § 1395g(a); 42
C.F.R. § 413.64(f), the Social Security Act requires SSA to
determine the appropriate payment amount before
disbursing funds to beneficiaries. 42 U.S.C. § 424a(a)(5).
This distinction is particularly evident in Cooper’s case, in
which SSA spent months determining the retroactive
benefits owed before disbursing any payment. Accordingly,
while a limited legal relationship exists because the
overpayment and present SSDI entitlement both arose under
the same statutory scheme, the Social Security Act does not
clearly evince Congress’s intent to establish every benefits
entitlement as a single transaction. As we have explained,
claims’ origin in the same statutory scheme is not alone
sufficient to establish a logical relationship, “and acceptance
of such a view would expand the concept of recoupment in
a way that would ‘undermine the fundamental purposes’ of
34 COOPER V. SSA
the Bankruptcy Code’s express limitations on setoffs.” In re
Gardens Reg’l Hosp. & Med. Ctr., 975 F.3d at 940 (quoting
5 Collier on Bankruptcy ¶ 553.10 (Richard Levin & Henry
J. Sommer eds., 16th ed. 2019)).
Relatedly, a limited legal relationship exists between the
pre-petition overpayment and the ongoing entitlement
because they arose from the same Trust Fund. Mere genesis
in a common fund cannot establish a logical relationship
between countervailing claims. See id. at 938 (applying
recoupment based on common fund and “distinctive”
payment system of continuously hospital payments into
segregated funds and payments to hospitals out of segregated
funds). As we have noted, “the ‘logical relationship’
concept is not to be applied so loosely that multiple
occurrences in any continuous commercial relationship
would constitute one transaction.” In re TLC Hosps., Inc.,
224 F.3d at 1012. Even so, some logical relationship results
where the overpayment and present entitlement stem from
the same Trust Fund. See In re Gardens Reg’l Hosp. & Med.
Ctr., 975 F.3d at 937–38 (recognizing legal relationship
between countervailing obligations where both obligations
arose from the same Medi-Cal fund).
In the context of SSDI benefits, however, the common
fund supports only a weak legal relationship because SSDI
beneficiaries do not make ongoing payments into the Trust
Fund from which SSA draws their benefits. First,
beneficiaries necessarily receive benefits based on their prior
accrual of credits because individuals can only earn credits
by working. See 20 C.F.R. §§ 404.110, 404.130, 404.132;
42 U.S.C. § 415. The SSDI benefits program is premised on
the notion that beneficiaries are unable to work enough to
support themselves financially. See, e.g., 42 U.S.C. § 403(a)
(explaining maximum benefits); see also 20 C.F.R.
COOPER V. SSA 35
§ 404.1594(g) (“If the evidence shows that you are no longer
disabled, we will find that your disability ended in the
earliest of the following months. . . . (3) The month in which
you demonstrated your ability to engage in substantial
gainful activity (following completion of a trial work
period) . . . .”); Mathews, 429 U.S. at 186 n.6 (“Again, the
insurance program, unlike the public assistance provisions,
was not need based, but instead was designed to protect
against the specific economic hardships created by
involuntary, premature retirement.”). By the time a
beneficiary has qualified for SSDI benefits, he has already
accrued the required credits and made the required payments
into the fund. Therefore, the Trust Fund does not involve a
continuous stream of payments between Cooper and SSA.
Cooper’s payments toward the Trust Fund ceased when his
disability rendered him unable to work.
Second, distinct from the hospital and payment scheme
at issue in In re Gardens Regional Hospital and Medical
Center, Inc., workers who earn credits do not make
designated payments into the Trust Fund. See U.S. SOC. SEC.
ADMIN., PUBL’N NO. 05-10072, supra at 1–3; BARRY F.
HUSTON, CONG. RSCH. SERV., supra, at 1. Workers pay
social security taxes, which are invested in United States
government securities and deposited into the General Fund
of the Treasury, making the original tax revenue
“indistinguishable from revenues in the General Fund that
come from other sources.” BARRY F. HUSTON, CONG. RSCH.
SERV., supra, at 1. While Social Security income is
accounted for in trusts divided according to SSDI benefits
and retirement benefits, taxpayers do not allocate their
payments specifically to one trust or another. Id. at 3. Thus,
the overpayment and present entitlement are legally related
because they both arose from the Trust Fund, but no circular
36 COOPER V. SSA
payment scheme bolsters that relationship. This distinction
underscores the inequity of recoupment in Cooper’s case.
B. Consideration of the Equities
The factual and legal connections supporting the logical
relationship between the overpayment and ongoing
entitlement to SSDI benefits do not make recoupment
equitable in this case. Cooper received a discharge of all his
debts in bankruptcy in 2020, nearly two years before he and
SSA learned of the overpayment. 11 This discharge resulted
in the closure of his bankruptcy case and included even the
unlisted overpayment debt because unlisted debts are
discharged in a no-asset Chapter 7 bankruptcy. See In re
Nielsen, 383 F.3d at 926–27. In the context of a disabled
debtor entitled to ongoing SSDI benefits, recoupment
violates our repeated warning that “courts should apply the
recoupment doctrine in bankruptcy cases only when ‘it
would be inequitable for the debtor to enjoy the benefits of
11
Significantly, we have not previously addressed recoupment in the
context of debtors who had already received a discharge and closed their
bankruptcy cases. Our previous recoupment precedents considered the
application of recoupment across the automatic stay that applies during
an open bankruptcy. See, e.g., In re Gardens Reg’l Hosp. & Med. Ctr.,
975 F.3d at 932; In re TLC Hosps., Inc., 224 F.3d at 1014. In that
context, we cautioned that “‘care should be taken’ in applying the
doctrine of recoupment in the bankruptcy context, given that ‘improper
application of the doctrine’” could undercut the Bankruptcy Code. In re
Gardens Reg’l Hosp. & Med. Ctr., 975 F.3d at 935 (quoting 5 Collier on
Bankruptcy ¶ 553.10[3] (Richard Levin & Henry J. Sommer eds., 16th
ed. 2019). We also suggested that recoupment is “scrutinized from the
perspective of its effect on the fundamental policies” of bankruptcy. Id.
The distinct timing of recoupment in this case emphasizes its inequity.
Cooper had received a full discharge of his debts, including the
overpayment debt, two years before either party became aware of the
overpayment.
COOPER V. SSA 37
that transaction without meeting its obligations.’” Newbery,
95 F.3d at 1403 (quoting In re Univ. Med. Ctr., 973 F.2d at
1081 (cleaned up)); see also In re TLC Hosps., Inc., 224 F.3d
at 1014 (quoting Newbery, 95 F.3d at 1403; In re Univ. Med.
Ctr., 973 F.2d at 1081).
Equitable recoupment in this case deprives Cooper not
only of the fresh start intended by Chapter 7 bankruptcy, but
also of necessary living expenses to which he is indisputably
entitled in contravention of the express purpose of Title II
Social Security benefits. See 20 C.F.R. § 404.508(a)
(“Defeat the purpose of title II, for purposes of this subpart,
means defeat the purpose of benefits under this title, i.e., to
deprive a person of income required for ordinary and
necessary living expenses.”); Sherwood Partners, 394 F.3d
at 1203 (“It is generally agreed that chapter 7 of the
Bankruptcy Code, which governs liquidations, embodies
two ideals: (1) giving the individual debtor a fresh start, by
giving him a discharge of most of his debts; and
(2) equitably distributing a debtor’s assets among competing
creditors.”). Although this appeal presents an issue of first
impression in our Circuit, the Third Circuit held in Lee v.
Schweiker, 739 F.2d 870 (3d Cir. 1984), that recoupment of
old age benefits was impermissible in part because it would
undermine the benefits’ purpose of “provid[ing] income to
qualifying individuals.” 12 Id. at 876. As explained above,
12
The Third Circuit employs a logical relationship test that emphasizes
contractual and temporal relationships, while our logical relationship test
focuses on the factual and legal connections between countervailing
obligations. Thus, the Third Circuit in Lee v. Schweiker concluded that
SSA could not recoup a prior overpayment of social security benefits
because social security beneficiaries are not in a contractual relationship
with SSA and “the primary purpose of these statutes is to provide income
38 COOPER V. SSA
Congress enacted both the old age and SSDI benefits
provisions of the Social Security Act to protect vulnerable
individuals from income insecurity. See Mathews, 429 U.S.
at 185–86. Like the Third Circuit, we conclude that
recoupment of overpaid SSDI benefits from a bankruptcy
beneficiary inequitably contravenes the fundamental
purpose of Title II Social Security benefits.
The statutory schemes undergirding SSDI benefits and
Chapter 7 bankruptcy share an intent to preserve vulnerable
individuals’ income security. 20 C.F.R. § 404.508; see also
42 U.S.C. § 404(b)(1) (recognizing recoupment of SSDI
benefits is inappropriate where beneficiary “is without fault
[and] such adjustment or recovery would defeat the purpose
of this subchapter or would be against equity and good
conscience”); Burkart v. Coleman (In re Tippett), 542 F.3d
684, 689 (9th Cir. 2008) (discussing “fresh start” purpose of
Chapter 7 bankruptcy). Cooper filed for no-asset
bankruptcy, meaning that the second fundamental purpose
of Chapter 7—the equitable division of assets—had limited
application and his debts were quickly discharged. Chapter
7’s first fundamental purpose of providing a fresh start to
honest debtors, however, remained applicable to Cooper’s
case. So too did the Social Security Act’s foundational
purpose of providing income security to vulnerable
individuals, especially disabled individuals. See 20 C.F.R.
security to the recipients.” 739 F.2d at 876. Notwithstanding the Third
Circuit’s emphasis on contractual relationships under its logical
relationship test, we have stated our express agreement with the Third
Circuit’s “observation that courts should apply the recoupment doctrine
in bankruptcy cases only when ‘it would . . . be inequitable for the debtor
to enjoy the benefits of that transaction without meeting its obligations.’”
Newbery, 95 F.3d at 1403 (quoting In re Univ. Med. Ctr., 973 F.2d at
1081).
COOPER V. SSA 39
§ 404.508(a). Recoupment two years after Cooper’s
discharge and four years after the overpayment that gave rise
to his debt to SSA deprived Cooper of a fresh start and
denied him financially necessary SSDI benefits.
Additional equitable considerations further disfavor
recoupment. There is no evidence that Cooper engaged in
conduct that would make it inequitable for him to retain the
benefit of the overpayment. Both parties agree that the
overpayment occurred at least in part due to SSA’s own
processing error. Cooper’s attorney submitted his workers’
compensation information to SSA in 2019 during his appeal
of SSA’s denial of his 2017 application, and Cooper had no
reason to believe SSA was unaware of his workers’
compensation benefits until he received the notice from it in
2022, after the debt had been discharged. Thus, Cooper did
not deliberately mislead SSA regarding his workers’
compensation benefits, and SSA had the correct information
at the time that it improperly calculated Cooper’s retroactive
benefits award. Cooper’s failure to utilize the appeal
remedies contained in the Social Security Act also does not
constitute inequitable behavior. There is no requirement that
a debtor utilize administrative remedies before reopening a
bankruptcy proceeding based on a creditor’s alleged
violation of the discharge injunction. See 11 U.S.C.
§ 524(a)(2). Relatedly, SSA’s own POMS guidance
instructs that even absent notice in a no-asset bankruptcy,
“the bankruptcy judgment will be binding on SSA.” U.S.
SOC. SEC. ADMIN., GN 02215.230, supra. As the Second
Circuit held in a similar case, we decline the invitation “to
take away the unemployment insurance safety net from a
debtor in bankruptcy, who has not been accused of willful
wrongdoing in connection with the overpayment.” See In re
40 COOPER V. SSA
Malinowski, 156 F.3d at 135; see also Rowan, 747 F.2d at
1056 (emphasizing absence of fraud).
Recoupment was improper in this case because it was not
“inequitable for the debtor to enjoy the benefits of that
transaction without meeting [his] obligations.” See
Newbery, 95 F.3d at 1403 (quoting In re Univ. Med. Ctr.,
973 F.2d at 1081). Although taxpayers fund SSDI benefits
such that any overpayment becomes a public burden,
$73,112.90 is relatively insignificant to SSA given Cooper’s
individual circumstances. Unlike the commercial entities to
which we have previously applied recoupment, Cooper did
not earn the right to SSDI benefits by voluntarily entering a
contract to assume mutual payment obligations or providing
services as part of a business arrangement: he qualified and
is entitled to government aid because he earned enough
credits before suffering a disability that renders him unable
to work. See In re Gardens Reg’l Hosp. & Med. Ctr., 975
F.3d at 939; Newbery, 95 F.3d at 1402–03; see also Spraic
v. U.S. R.R. Ret. Bd., 735 F.2d 1208, 1212 (9th Cir. 1984)
(“[S]ocial security benefits ‘are not contractual . . . .’”
(quoting U.S. R.R. Ret. Bd. v. Fritz, 449 U.S. 166, 174
(1980))). In accordance with the statutory structure of SSDI
benefits, Cooper accrued his entitlement to ongoing benefits
before the events of this case transpired. Moreover, as
SSA’s own definition of disability acknowledges, Cooper
cannot voluntarily cease his reliance on SSDI benefits. See
In re TLC Hosps., Inc., 224 F.3d at 1014 (“It is fair for HHS
to adjust for such overpayments . . . If a provider in
bankruptcy does not wish to be subject to Medicare’s system
of adjustments, it can cease providing Medicare services.”);
42 U.S.C. § 423(d)(1)(A) (defining disability in part as
“physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last
COOPER V. SSA 41
for a continuous period of not less than 12 months”). The
limited factual and legal connections between the debt and
Cooper’s ongoing entitlement to SSDI benefits do not make
it equitable for SSA to defy the financial protection purposes
of Chapter 7 bankruptcy and SSDI benefits to recover an
overpayment that occurred in no small part because of SSA’s
own error.
CONCLUSION
For the foregoing reasons, we REVERSE the decision
of the BAP and REMAND to the BAP with instructions to
remand to the bankruptcy court for further proceedings
consistent with this opinion.
REVERSED AND REMANDED.