Setoff is commonly encountered in bankruptcy and non-bankruptcy situations.  If there are mutual debts between two entities, either may generally offset the debts.  These debts frequently arise where one entity is a vendor to a customer and selling on credit, and at the same time is also making occasional purchases on credit from the customer.  If one entity owes $100 to a second entity but is owed $300 by this second entity, these mutual debts may be offset, leaving just the $200 owed by the second entity.

On June 15, 2015, the US Supreme Court ruled that a law firm could not recover fees it incurred in defending its own fee application.

THE ASARCO CASE

The case involved the copper company ASARCO LLC that filed for Chapter 11 protection in 2005 to deal with cash flow and environmental issues, among others.