May the Trustee’s Personal Debt to the Trust Owed as a Result of a Breach of Trust be Discharged in Bankruptcy?

Charles E. Rounds, Jr.
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The U.S. Bankruptcy Code provides that a personal debt is not dischargeable if the debt had been occasioned by the debtor’s defalcation while acting in a fiduciary capacity. Courts of appeals had long disagreed about the mental state that must accompany the bankruptcy-related definition of “defalcation,” particularly in the context defalcation by trustees. The U.S. Supreme Court has recently settled the matter. Charles E. Rounds, Jr. explains in an updated version of Section 7.4 of Loring and Rounds: A Trustee’s Handbook (2013).

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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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