Etymology
Look up defalcation in Wiktionary, the free dictionary.
The term is from Latin, and is analyzed as de- "off" + falx "sickle" + -atio "act of", hence literally "cutting off with a sickle". There is also a verb form, "defalcate".
In financial and legal usage, defalcation may involve misappropriation of funds by a person trusted with their charge; also, the act of misappropriation, or an instance thereof. A common example of defalcation would be skimming.
The United States Bankruptcy Code specifically uses the term defalcation to describe a category of acts that taint a particular debt such that it cannot be discharged in bankruptcy. [1] The United States Supreme Court addressed the issue in 2013, [2] holding that "defalcation" in the context of the U.S. Bankruptcy Code [3] requires proof of "a culpable state of mind… involving knowledge of, or gross recklessness in respect to, the improper nature of the relevant fiduciary behavior." [4]
In accounting terminology, especially with respect to the area of audit, defalcation means a misappropriation of assets or theft of assets by employees or officers of a corporation.
Defalcation occurs when a debtor commits a bad act while acting in a fiduciary capacity. [5] The classic example of defalcation occurs when a trustee recklessly invests trust funds and loses the money. If the beneficiary wins a judgment against the trustee, and the trustee files for bankruptcy, the debt (the judgment) cannot be discharged in bankruptcy because the debt was the result of a defalcation.
Defalcation, for example, applies when a debtor is acting in a fiduciary capacity. To constitute a defalcation, the conduct involves a degree of culpability that is greater than negligence, but the act does not need to rise to the level of a "fraud" under common law. Defalcation requires showing of conscious behavior or extreme recklessness. [6]
The term is used in legal proceedings other than bankruptcy to refer more generally to embezzlement; it is often used in the context of the title insurance business. A title agent who misuses funds intended to be used to close insured transactions is said to be involved in a defalcation. Many[ citation needed ] title insurers have their own "defalcation units".
Sometimes defalcation has been pronounced for very small amounts as under 2 £ and cents, even if it was claimed to be an error in handling change.
The term is from Latin, and is analyzed as de- "off" + falx "sickle" + -atio "act of", hence literally "cutting off with a sickle". There is also a verb form, "defalcate".
Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor.
Chapter 11 of the United States Bankruptcy Code permits reorganization under the bankruptcy laws of the United States. Such reorganization, known as Chapter 11 bankruptcy, is available to every business, whether organized as a corporation, partnership or sole proprietorship, and to individuals, although it is most prominently used by corporate entities. In contrast, Chapter 7 governs the process of a liquidation bankruptcy, though liquidation may also occur under Chapter 11; while Chapter 13 provides a reorganization process for the majority of private individuals.
Chapter 7 of Title 11 U.S. Code is the bankruptcy code that governs the process of liquidation under the bankruptcy laws of the U.S. In contrast to bankruptcy under Chapter 11 and Chapter 13, which govern the process of reorganization of a debtor, Chapter 7 bankruptcy is the most common form of bankruptcy in the U.S.
Trustee is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust and so can refer to any individual who holds property, authority, or a position of trust or responsibility for the benefit of another. A trustee can also be a person who is allowed to do certain tasks but not able to gain income. Although in the strictest sense of the term a trustee is the holder of property on behalf of a beneficiary, the more expansive sense encompasses persons who serve, for example, on the board of trustees of an institution that operates for a charity, for the benefit of the general public, or a person in the local government.
In the United States, bankruptcy is largely governed by federal law, commonly referred to as the "Bankruptcy Code" ("Code"). The United States Constitution authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States". Congress has exercised this authority several times since 1801, including through adoption of the Bankruptcy Reform Act of 1978, as amended, codified in Title 11 of the United States Code and the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).
In accounting, insolvency is the state of being unable to pay the debts, by a person or company (debtor), at maturity; those in a state of insolvency are said to be insolvent. There are two forms: cash-flow insolvency and balance-sheet insolvency.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) is a legislative act that made several significant changes to the United States Bankruptcy Code.
A fraudulent conveyance or fraudulent transfer is the transfer of property to another party to prevent, hinder, or delay the collection of a debt owed by or incumbent on the party making the transfer, sometimes by rendering the transferring party insolvent. It is generally treated as a civil cause of action that arises in debtor/creditor relations, typically brought by creditors or by bankruptcy trustees against insolvent debtors, but in some jurisdictions there is potential for criminal prosecution.
A bankruptcy discharge is a court order that releases an individual or business from specific debts and obligations they owe to creditors. In other words, it's a legal process that eliminates the debtor's liability to pay certain types of debts they owe before filing the bankruptcy case.
Consumer bankruptcy in Canada is governed by the Bankruptcy and Insolvency Act ("BIA"). The legislation is complemented by regulations, as well as directives from the Office of the Superintendent of Bankruptcy that provide guidelines to trustees in bankruptcy on various aspects of the BIA.
Bankruptcy in the United Kingdom is divided into separate local regimes for England and Wales, for Northern Ireland, and for Scotland. There is also a UK insolvency law which applies across the United Kingdom, since bankruptcy refers only to insolvency of individuals and partnerships. Other procedures, for example administration and liquidation, apply to insolvent companies. However, the term 'bankruptcy' is often used when referring to insolvent companies in the general media.
The Bankruptcy and Insolvency Act is one of the statutes that regulates the law on bankruptcy and insolvency in Canada. It governs bankruptcies, consumer and commercial proposals, and receiverships in Canada.
An individual voluntary arrangement (IVA) is a formal alternative in England and Wales for individuals wishing to avoid bankruptcy. In Scotland, the equivalent statutory debt solution is known as a protected trust deed.
Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors. In most cases personal bankruptcy is initiated by the bankrupt individual. Bankruptcy is a legal process that discharges most debts, but has the disadvantage of making it more difficult for an individual to borrow in the future. To avoid the negative impacts of personal bankruptcy, individuals in debt have a number of bankruptcy alternatives.
An unfair preference is a legal term arising in bankruptcy law where a person or company transfers assets or pays a debt to a creditor shortly before going into bankruptcy, that payment or transfer can be set aside on the application of the liquidator or trustee in bankruptcy as an unfair preference or simply a preference.
A custodial account is a financial account set up for the benefit of a beneficiary, and administered by a responsible person, known as a legal guardian or custodian, who has a fiduciary obligation to the beneficiary.
The history of bankruptcy law in the United States refers primarily to a series of acts of Congress regarding the nature of bankruptcy. As the legal regime for bankruptcy in the United States developed, it moved from a system which viewed bankruptcy as a quasi-criminal act, to one focused on solving and repaying debts for people and businesses suffering heavy losses.
Kawaauhau v. Geiger, 523 U.S. 57 (1998), was a United States Supreme Court case in which the Court ruled that debt arising from a medical malpractice judgment, attributable to negligent or reckless conduct is dischargeable under the Bankruptcy Code.
Bank of America, N. A. v. Caulkett, 575 U.S. 790, 135 S. Ct. 1995 (2015), is a bankruptcy law case decided by the Supreme Court of the United States on June 1, 2015. In Caulkett, the Court held that 11 U.S.C. § 506(d) does not permit a Chapter 7 debtor to void a junior mortgage on the debtor's property when the amount of the debt secured by the senior mortgage on that property exceeds the property's current market value.
| Authority control databases: National |
|---|
