Bullock v. BankChampaign: Defalcation Under § 523(a)(4)


Whether because of the declining docket of the Court or the technical subject-matter involved, bankruptcy topics have come before the United States Supreme Court infrequently in recent years. This term, the Court heard a case out of the Eleventh Circuit, Bullock v. BankChampaign, to decide the following issues: (a) what degree of misconduct by a trustee constitutes “defalcation” under 11 U.S.C. § 523(a)(4) of the Bankruptcy Code, and (b) whether that definition of defalcation includes actions that result in no loss of property.


In 1978, Randy Curtis Bullock (“Bullock”) became the trustee of his father's irrevocable living trust. As trustee, Bullock was only allowed to borrow from the trust to: (i) pay the life insurance premiums, and (ii) satisfy a withdrawal request from a beneficiary. Nonetheless, Bullock borrowed from the trust three times: to satisfy a debt on his father’s business, to allow him and his mother to purchase certificates of deposit, and to allow him and his mother to purchase real estate. All of the loans were fully repaid with six percent interest. The trust did not earn any additional profit on the loans.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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