UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 20-1161

In re: LARRY EDWARD WOOD; JESSICA ANN WOOD,

Debtors. ------------------------------ LARRY EDWARD WOOD; JESSICA ANN WOOD,

Plaintiffs – Appellees, v. UNITED STATES DEPARTMENT OF HOUSING & URBAN DEVELOPMENT (HUD),

Defendant - Appellant.

Appeal from the United States District Court for the Southern District of West Virginia, at Beckley. Irene C. Berger, District Judge. (5:19-cv-00302)

Submitted: March 12, 2021 Decided: April 7, 2021

Before WILKINSON, NIEMEYER, and QUATTLEBAUM, Circuit Judges.

Reversed and remanded by published opinion. Judge Wilkinson wrote the opinion, in which Judge Niemeyer and Judge Quattlebaum joined. Richard E. Zuckerman, Principal Deputy Assistant Attorney General, Bruce R. Ellisen, Bethany B. Hauser, Tax Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.; Michael B. Stuart, United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Charleston, West Virginia, for Appellant. William R. Wooton, WOOTON & WOOTON, Beckley, West Virginia, for Appellees.

2 WILKINSON, Circuit Judge:

The Roman deity Janus was celebrated in ancient times for an ability to look simultaneously in two directions. The Bankruptcy Code performs a Janus-like function in our legal system. It must look forward, to preserve some modicum of material security as debtors begin their financial lives anew. At the same time, however, it must also look backward, to ensure that the debts of bankruptcy petitioners’ “past lives” are discharged as equitably as circumstance allows. This case presents a typical clash between these two faces of the Code. Larry and Jessica Wood, the bankruptcy petitioners, both owe and are owed a debt respecting the United States. Looking ahead, the Woods wish to place the tax overpayment the government owes them outside the reach of all creditors, including the government itself. Looking back, the Treasury claims it is bound by statute to seek setoff of those funds against a past debt that the Woods owed another department of the government.

Because this court ruled in Copley v. United States, 959 F.3d 118 (4th Cir. 2020), that the Code accords a special priority to the Treasury’s right of setoff as against a bankrupt’s right of exemption, we hold that 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. Furthermore, although the government exercised this right too hastily, before first requesting relief from the automatic stay, we can see no reason to abridge the government’s right under 11 U.S.C. § 362(d) to file a motion seeking the stay’s annulment. We therefore remand the case for further proceedings in accordance with this decision.

3 I.

To finance the purchase of a mobile home in 2008, the Woods borrowed $39,739.44. J.A. 55. A little under six years later, however, the Woods defaulted on their home loan, leaving behind an unpaid balance of $23,066.66. The United States Department of Housing and Urban Development (HUD), which had insured the Woods’ loan, paid the amount outstanding and, shortly thereafter, issued the Woods a demand for payment in the same amount.

HUD then sent the Woods a Notice of Intent to Collect by Treasury Offset. This Notice informed the Woods that the Treasury could offset their income tax overpayments against the debt they owed to HUD. In 2017, the Treasury adopted this course, offsetting the Woods’ federal tax overpayment of $9,961 toward the satisfaction of their debt.

On March 21, 2018, the Woods filed a Chapter 7 bankruptcy petition