UNITED STATES BANKRUPTCY COURT

EASTERN DISTRICT OF KENTUCKY

CORBIN DIVISION

IN RE:

GEORGE HOWARD COWAN

BRIDGET SHARON COWAN

DEBTORS CASE NO. 93-60066

MEMORANDUM OPINION

This matter is before the Court on the Motion to Reconsider of creditor United States of America, Farmers Home Administration ("FmHA"), filed herein on August 19, 1993. This Court entered an Order overruling FmHA's Motion for Relief from Stay on August 9, 1993. The debtors have not filed a response to the Motion to

Reconsider.

The Order of August 9, 1993, was based on the Court's finding that, pursuant to 11 U.S.C. '553(b), FmHA could not set off the debtors' tax refund in the amount of $1089.00. FmHA now argues that the Court used the wrong figures in its computation and that it incorrectly applied the statute to a situation that did not involve a prepetition setoff. As concerns the Court's application of '553(b), FmHA argues that it is incorrect and contrary to the intention of Congress.

FmHA cites no cases or other authority in support of its position, but only argues that this Court should not "follow the authority in other jurisdictions applying '553(b) to post petition setoffs". While there is some authority for the proposition that the 90 day improvement test does not apply in this situation, this Court is convinced that the reasoning employed in the cases cited in its Memorandum Opinion is sound, and declines to change its position on this issue.

FmHA states that the debtors owed it $70,378.08 on the 90th day before filing, rather than $70,537.84 as stated in the Memorandum Opinion. FmHA goes on to state that the debtors owed it $71,860.72 on the date of filing of the petition as set out in its proof of claim, and calculates an insufficiency which takes into account interest which has accrued on the debt. A creditor is "...entitled to include accrued interest in the insufficiency calculation for the purpose of determining the extent of improvement of [its] position". In re Madcat Two, Inc., 127 B.R. 206 (Bkrtcy.E.D.Ark. 1991), at page 213. See also Matter of Hecht, 41 B.R. 701 (Bkrtcy.S.D.N.Y. 1984), at fn. 3.

FmHA did not allege the accumulation of interest at the time of its request for relief from stay, but this issue is now before the Court. The Court must agree with FmHA that the accumulation of interest in effect cancels out any improvement of position. In consideration of the foregoing, it is therefore the opinion of this Court that FmHA's Motion to Reconsider this Court's Order of August 9, 1993, should be sustained and that the Order should be set aside. Further, FmHA's Motion for Relief from Stay should be sustained so that FmHA may set off the debtors' 1992 tax refund. An order in conformity with this opinion will be entered separately.

Dated:

By the Court -

________________________________

Judge

Copies to:

Debtors

David E. Middleton, Esq.

L. Lee Tobbe, Esq.