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Defalcation Defined by the United States Supreme Court

Case: Bullock v. BankChampaign, 569 U.S. _____ (2013).

The term “defalcation” has been an exception to discharge in bankruptcy statutes since 1867. However, courts have disagreed as to what mental state must accompany a “defalcation.”

After a century and a half, the United States Supreme Court addressed what the term “defalcation” meant in the context of an exception to discharge. Specifically, 11 U.S.C. section 523(a)(4) provides that a debt for “fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny” is not dischargeable.
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