Setoff

Definition

A setoff is an offset against a claim.

Purpose

The purpose of a setoff is to allow a debtor to counterbalance a claim made by a creditor with a claim of their own, effectively reducing or eliminating the amount owed.

Examples of Use

• In legal disputes, a defendant might use a setoff to reduce the amount they owe a plaintiff by the amount the plaintiff owes them.
• In banking, a setoff can occur when a bank uses funds from a debtor's account to settle an outstanding loan.
• In business transactions, companies may apply setoffs to balance mutual debts between parties.

Related Terms

• Counterclaim: A claim made to offset another claim in a legal action.
• Offset: The act of counterbalancing or compensating for something.
• Recoupment: The recovery of costs or losses by applying deductions from payments owed.

Notes

Setoffs are commonly used in legal and financial contexts to manage and resolve mutual debts between parties.