U.S. Supreme Court rules on meaning of defalcation in bankruptcy code

09/30/2013 | WealthManagement.com (U.S.)

The U.S. Supreme Court ruled that defalcation in the context of a bankruptcy discharge required a knowing or reckless breach of fiduciary duty. The trustee was sued by his brothers, co-beneficiaries of the trust, for borrowing money from the trust for his own benefit, and filed for bankruptcy when they obtained a judgment against him. The ruling is significant in that it appears to raise the bar in actions against fiduciaries, requiring a heightened standard of recklessness for the finding of defalcation needed to deny a discharge in a bankruptcy case.

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