UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

CORBIN DIVISION

IN RE:

CHERYL ANN GENTRY

HIRAM GENTRY CASE NO. 98-60040

DEBTORS

MEMORANDUM OPINION AND ORDER

This matter is before the Court upon the Motion for Relief from Stay filed herein by Mid South Electrics (AMid South@) seeking to recoup from future medical payments Mid South is obligated to make on behalf of the debtor payments which were made on behalf of the debtor prior to the filing of the petition on a portion of debtor=s claim that was disallowed. Because the Court finds that the payments by Mid South on the disallowed claim are a dischargeable debt in this case and the equitable doctrine of recoupment is inapplicable here, the Court will deny relief from the automatic stay.

The debtor, Cheryl Ann Gentry (AGentry@), was employed by Mid South and filed claims for worker=s compensation based upon two types of injuries. The first injury, carpel tunnel syndrome, was subsequently allowed as a job related injury and Mid South was ordered to pay medical expenses and temporary disability benefits in connection with that injury. The second claimed injury, to Gentry=s back, neck, shoulder and abdomen areas (the Aback injury@), was ruled by the Administrative Law Judge as not work related and, hence, not compensable, after Mid South had paid medical expenses related to this injury in the amount of $4,149.53. Mid South now seeks to recoup this sum against future obligations it may have for medical expenses related to treatment of carpel tunnel syndrome.

No case directly in point on this matter has been found by the attorneys or by the Court. The debtor has cited Baker v. United States, 100 B.R. 80 (M.D. Fla. 1989) which held that debts arising from overpayment of federal disability compensation benefits was dischargeable and not subject to recoupment because the indebtedness was not a debt made nondischargeable by any of the provisions of 11 U.S.C. '523. That court found that a right to payment existed between the government and the debtor which meant that the government had a claim against the debtor at the time of filing of the petition. It went on to observe that, pursuant to the provisions of 11 U.S.C. '727, all debts are dischargeable unless they are excepted from discharge by virtue of the provisions of 11 U.S.C. '523. In that case, as in this one, there is no allegation of nondischargeability under the provisions of '523.

The Baker court, like many other courts, limited the use of the equitable doctrine of recoupment to cases involving contractual rights and distinguished cases, like the present one, involving statutory rights. The debtor has correctly pointed out that debtor received no direct benefits from the payments made by creditor since they were payments of medical expenses incurred by the debtor. Further payments, as well, will be payments to medical service providers and not direct payments to the debtor. The Court believes that the reference in the ruling of the administrative law judge to credit for payments already made (Award section, paragraph no.1, page 18) was not a holding of entitlement to credit back against future payments of the expenses on the claim that was not allowed but a general reference that the employer was entitled to credit for sums it had paid against the allowed claim.

Further, in looking at Kentucky=s treatment of recoupment with respect to worker=s compensation claims, it appears that the injured party gets the benefit of overpayments in the weekly compensation amount since the employer is entitled to a week for week credit for payments made prior to a final determination rather than a dollar for dollar credit. General Electric Company v. Morris, 670 S.W.2d 854 (1984). Also, it appears that Social Security benefits overpayments are dischargeable as a debt in bankruptcy. Rowan v. Morgan, 747 F.2d 1052 (6^th Cir. 1984).

For the foregoing reasons, it is hereby

ORDERED that the Motion of Mid South Electrics for Relief from the Automatic Stay be, and the same hereby is, overruled.

Dated this _____ day of August, 1998.

BY THE COURT

______________________________

JUDGE

COPIES TO:

Marcia Smith, Esq.

Ronald W. May, Esq.

David R. Baird, Esq.

Sharon M. Cooper, Esq.

Scott C. Marks, Esq.

Maxie E. Higgason, Esq.

Debtors