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Bullock Court Clarifies the term: “Defalcation” in the Bankruptcy Context

In Bullok v Bankchampaign NA, the US Supreme Court clarified the term “defalcation” as that term is used in 11 USC 523(a)(4) which provides that a debt is not discharged “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.”

Resolving a conflict among the Circuit Courts, the┬áBullock Court held that the term “defalcation” in the Bankruptcy Code includes a culpable state of mind requirement involving knowledge of, or gross recklessness in respect to, the improper nature of the fiduciary behavior.

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