Definitions

Defalcation

Defalcation

[dee-fal-key-shuhn, -fawl-]
Defalcation is a term used by the United States Bankruptcy Code to describe a category of bad acts that taint a particular debt such that it cannot be discharged in bankruptcy. The division is different from both criminal and civil rules describing permitted and unpermitted acts. Thus, parking fines garnered through illegal parking are generally dischargeable, but fines levied as part of a criminal conviction for drug trafficking generally are not. Similarly, debts of a civil (non-criminal) nature that are acquired through entirely legal means may not be dischargeable if discharge would allow a debtor to easily calculate declaration of bankruptcy into a profitable financial plan (e.g. by accumulating large cash advances before filing). The term is also used in legal proceedings outside of 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 title insurers have their own "defalcation units."

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