Source Publication Abbreviation
Am. Bankr. Inst. L. Rev.
Bankruptcy law has fiercely competing policies. A primary one is the debtor's fresh start. Another is that discharge of debt is a selectively conferred privilege rather than an unlimited right. This latter policy is manifested in part by the Bankruptcy Code's exceptions to discharge. One exception involves a debt "for . . . defalcation while acting in a fiduciary capacity."1 In 2013, the Supreme Court addressed the meaning of the term "defalcation" and established a new, heightened mental standard based on the Model Penal Code's definition of recklessly.2 The meaning of the term "fiduciary capacity" is not clear. This Article makes three contributions. First, it compiles and evaluates the Supreme Court's jurisprudence on the meaning of fiduciary capacity in the bankruptcy setting. The most recent opinion on that term was issued in 1934 and provided limited guidance that was obscure and primarily in a negative form.3 Since the time of that decision, circuit and bankruptcy courts throughout the country have struggled to apply a consistent framework for determining whether modern legal relationships amount to a fiduciary capacity. The second contribution is the categorization of the circuit split into four separate approaches. The final contribution is an assessment of the adequacy of the current judicial approaches and the proposal of a new framework for determining if a relationship is a fiduciary capacity for purposes of the exception to discharge. This is done by exploring the methods used to identify a fiduciary relationship under non-bankruptcy law, examining the problems with using those methods in a bankruptcy context, and suggesting the Supreme Court's 2013 opinion on defalcation justifies a rebalancing of the judicial construction of the statutory terms "defalcation" and "fiduciary capacity." 4 *
Byington, Jonathon S., "Fiduciary Capacity and the Bankruptcy Discharge" (2016). Faculty Law Review Articles. 140.