EXCEPTIONS TO DISCHARGE: 11 U.S.C. § 523(a)(4)

Nondischargeability under § 523(a)(4) requires that the underlying debt was obtained in one of three ways: by embezzlement, by larceny, or by fraud or defalcation while acting in a fiduciary capacity. As the party seeking a determination of nondischargeability, the plaintiff bears the burden of proving all elements by a preponderance of the evidence, and the court construes § 523(a) strictly against the plaintiff and liberally in favor of the defendant. Grogan v. Garner, 111 S. Ct. 654, 661 (1991); Rembert v. AT&T Universal Card Servs., Inc. (In re Rembert), 141 F.3d 277, 281 (6th Cir. 1998); Haney v. Copeland (In re Copeland), 291 B.R. 740, 759 (Bankr. E.D. Tenn. 2003).
Defalcation under § 523(a)(4) requires proof of: 1) a fiduciary relationship; 2) breach of that fiduciary relationship; and 3) a resulting loss.” R.E. Am., Inc. v. Garver (In re Garver), 116 F.3d 176, 178 (6th Cir. 1997). A “defalcation” encompasses not only embezzlement and misappropriation by a fiduciary, but also the “failure to properly account for such funds.” Capitol Indemnity Corp. v. Interstate Agency, Inc. (In re Interstate Agency), 760 F.2d 121, 125 (6th Cir. 1985) (internal quotations omitted). The defalcation provision applies to “only those situations involving an express or technical trust relationship arising from placement of a specific res in the hands of the debtor.” In re Garver, 116 F.3d at 180.To establish the existence of an express or technical trust, a creditor must demonstrate: (1) an intent to create a trust; (2) a trustee; (3) a trust res; and (4) a definite beneficiary.” Commonwealth Land Title Co. v. Blaszak (In re Blaszak),397 F.3d 391-392 (6th Cir. 2005) (citing Graffice v. Grim (In re Grim), 293 B.R. 156, 166 (Bankr. N.D.Ohio 2003)).


By: Jamie L. Harris, Esq.

Jamie Harris is a member with DelCotto Law Group PLLC. Her practice of law focuses on helping business owners hurdle financial obstacles. Jamie is best known for her experience in filing Chapter 7, 11, 12, and 13 bankruptcies. In her Chapter 11 cases, Jamie has represented companies from many different industries including healthcare, nonprofit, trucking, construction, commercial real estate and telecommunications.

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