What Is a Setoff?
A setoff — also called an offset — is the reduction of one party's claim by a counter-claim the other party holds against it. When two parties owe each other money, a setoff lets the mutual debts be netted against one another so that only the net difference is actually paid. It prevents the unfairness of one party collecting in full while ignoring what it owes the other.
How Setoff Works
- Two parties each owe the other a sum of money
- The smaller obligation is subtracted from the larger
- Only the net balance remains payable from one party to the other
Where Setoff Arises in Florida
Setoff appears in litigation, where a defendant asserts a setoff or counterclaim to reduce a plaintiff's recovery; in banking, where a bank applies a depositor's account against a debt owed to the bank; and in contract and lease disputes, where one party deducts amounts the other owes. The right to set off generally requires that the debts be mutual (between the same parties in the same capacity) and matured. Whether and how a setoff applies can depend on the contract terms and, in insolvency, on bankruptcy rules.
Related Terms
- Offset — The same concept under its other common name
- Judgment — May be reduced by a setoff
- Damages — What a setoff reduces
Barnes Walker Litigation
Barnes Walker's litigation attorneys assert and defend setoff and counterclaim rights in Florida business and contract disputes. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC