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Discharging Fiduciary Debts

87 Am. Bankr. L. J. 51 (Winter 2013)

38 Pages Posted: 25 Nov 2012 Last revised: 2 Sep 2013

Zvi S. Rosen

George Washington University - Law School

Date Written: April 3, 2013

Abstract

Under section 523(a)(4) of the Bankruptcy Code, a debt is not dischargeable if it results from “fraud or defalcation” while the debtor is acting in a “fiduciary capacity.” Although this provision has existed in various incarnations in the bankruptcy law since 1841, the meaning of both the terms “defalcation” and “fiduciary capacity” is subject to confusion and disagreement among the courts. This piece explores the meaning of these terms from the nineteenth century for today, and demonstrates that the best meaning of “defalcation” while acting in a “fiduciary capacity” is the failure of one who holds the funds of another in a trust-like situation to account for those funds. A split of authority among the circuit courts has existed for years regarding these issues, but the Supreme Court has recently granted certiorari to decide these issues in the case of Bullock v. Bankchampaign.

Keywords: bankruptcy, defalcation, fiduciary, discharge, Bullock v. Bankchampaign, Chapman v. Forsyth

Suggested Citation

Rosen, Zvi S., Discharging Fiduciary Debts (April 3, 2013). 87 Am. Bankr. L. J. 51 (Winter 2013). Available at SSRN: https://ssrn.com/abstract=2180143 or http://dx.doi.org/10.2139/ssrn.2180143

Zvi Rosen (Contact Author)

George Washington University - Law School ( email )

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