Portland Bankruptcy Attorney

Bankruptcy Lawyer Portland Or

Portland Bankruptcy Attorney
CALL 503-380-7822
email-iconmap-marker
  • Home
  • Bankruptcy
    • Personal Bankruptcy
    • Business Bankruptcy
    • Foreclosure
    • Chapter 7 Bankruptcy
    • Chapter 13 Bankruptcy
  • Estate Planning
  • About
  • Contact

Making Sense of Bankruptcy: Discharging a Debt Owed for Committing Fraud in a Fiduciary Capacity

June 8, 2015 by Chris Kane

You may not be able to write off debts “for fraud or defalcation while acting in a fiduciary capacity.” Should this concern you?


Here’s the sentence that we’re explaining today:

In a Chapter 7 or 13 bankruptcy case you may be challenged in your attempt to discharge (write off) a claim arising out of “fraud” or “defalcation” while acting in a fiduciary capacity.

Challenges to Discharge Under Either Chapter 7 or Chapter 13

In the last few blog posts we’ve been looking at types of debts which might not be discharged—legally written off—in bankruptcy. You may have heard that more types of debts can be discharged in one kind of consumer bankruptcy—specifically Chapter 13 “adjustment of debts”—than in Chapter 7 “straight bankruptcy.”

But that’s mostly outdated information. For decades since the late 1970’s, Chapter 13 provided what came to be called a “super-discharge” because of the various kinds of debts that could not be discharged under Chapter 7 but could under Chapter 13. But over the years Congress kept cutting back on this Chapter 13 advantage little by little until there are now very few debts that can be discharge only in a Chapter 13 case.

Specifically for a long time the discharge of debts arising from “fraud or defalcation while acting in a fiduciary relationship” could not be challenged by the creditor under Chapter 13. But that’s changed. The last major overhaul to the bankruptcy laws in 2005 gave creditors the ability to raise this challenge under both of the two major consumer bankruptcy options, Chapter 7 AND Chapter 13.

“Challenges to Discharge”

We keep using the words “challenges to discharge” because debts arising from “fraud or defalcation while acting in a fiduciary capacity” in fact CAN BE AND ARE discharged IF NOT timely CHALLENGED.

Certain kinds of debts do not get discharged as a matter of law without the creditor needing to take any action to make that happen. If you owe back child support or recent income taxes, those simply are not discharged in bankruptcy. But like other types of debts covered in the last couple earlier blog posts, “fiduciary capacity” debts ARE discharged if the creditor-claimant fails to challenge dischargeability by the deadline given by the bankruptcy court.

Assuming the creditor on a “fiduciary capacity” debt has received appropriate notice of the debtor’s bankruptcy case (usually by being listed on the debtor’s creditor schedules filed at court with the bankruptcy petition), this creditor has a very short time to raise its challenge to discharge.  Its deadline to do this is only about three months after the bankruptcy case is filed, and must do so by filing a formal complaint with the bankruptcy court. If the creditor fails to file a complaint on time, it loses its chance to do so ever again.

“Fraud or Defalcation”

Fraud is basically cheating someone. For a debtor to commit fraud requires him or her to 1) make a statement or representation, 2) which the debtor knows at the time is false and 3) makes it for the purpose of deceiving the creditor, 4) who then relies on debtor’s statement/representation, and 5) as a result gets damaged (by losing money, usually).

Defalcation is basically embezzlement. For a debtor to commit a defalcation requires 1) the presence of a pre-existing fiduciary relationship between creditor and debtor in which the debtor holds funds for the creditor, 2) debtor’s breach (breaking) of that fiduciary relationship, and 3) the creditor’s resulting financial loss from that breach.

While “Acting in a Fiduciary Capacity”

As you can see this component is already incorporated into the meaning of “defalcation.” But generally, someone with fiduciary capacity has the right and responsibility to act on behalf of another through a relationship of trust.

People with fiduciary capacity potentially include a partner as to the partnership and each of the other partners, a real estate broker towards the buyer and/or seller she is contracted with, and the executor of a decedent’s estate towards the beneficiaries, and the corporate officers and directors of an insolvent corporation towards the corporation’s creditors.

Defrauding someone or embezzling from someone with whom the debtor has a fiduciary relationship enables that someone to challenge the discharge of his or her losses from the fraud or embezzlement.

 

Filed Under: Discharge of Debts Tagged With: defalcation, discharge, embezzlement, financial fraud, fraud, nondischarged debts

Welcome to the Portland Bankruptcy Law Blog

I'd like to help you overcome your financial problems. One good way to start is to provide you with accurate and timely information about the bankruptcy laws. I do that here through informative blog posts, with a new one published here every week. I've been doing this for years so there is a wealth of information for you here.

But please be aware that since you are unique person you need a highly personalized solution to your challenges. That requires the analysis and advice of a conscientious and highly experienced attorney. That's really the only sensible way to get the benefit of the many powerful and effective remedies that the law provides.

So I hope the information provided here is helpful to you. Please contact me for guidance to a much better place:

503-380-7822

Recent Posts

  • No link found between bankruptcy and employment prospects
  • Creditor found in violation of automatic bankruptcy stay
  • What are the short- and long-term credit impacts of bankruptcy?
  • Bankruptcy Attorney Portland, Or | Bankruptcy Lawyer Oregon | Christopher J. Kane P.C.

Categories of Blog Posts

  • Portland Bankruptcy Attorney
  • Personal Bankruptcy
  • Business Bankruptcy
  • Stop Foreclosure
  • Chapter 7 Bankruptcy
  • Chapter 13 Bankruptcy
  • Filing Bankruptcy in Oregon
  • Testimonials
  • FAQ
  • Blog

FREE CONSULTATION

GET A FREE CONFIDENTIAL CONSULTATION THIS MONTH.
*Please see below.

CONTACT

Christopher J. Kane, P.C.

Address: 2207 NE Broadway, Suite 100, Portland OR 97232

Phone: 503-380-7822

Email: chris@ckanelaw.com


We are a debt relief agency.

We proudly help people understand their options and, if appropriate, help them file for bankruptcy relief under the Bankruptcy Code.

DIRECTIONS

CONNECT

  • Email
  • Facebook
  • LinkedIn
  • Twitter
Avvo - Rate your Lawyer. Get Free Legal Advice.
Best Bankruptcy lawyers in Portland
Best Bankruptcy Lawyers in Portland

* Using this form, or email, for communicating with us does not establish an attorney-client relationship, until we do that in writing. So please do not send confidential or time-sensitive information through this form or by email. You affirm that you have read and understand this disclaimer.
CAUTION: This website is to provide visitors with basic information about our firm, and information about how to contact us. Every situation is different, and no information on this website is legal advice on any specific question. You should not act on any of the information without first conferring with an attorney licensed in your jurisdiction. No attorney-client relationship or privilege is formed by visiting this site or by unsolicited email. Therefore, initial emails should not contain any confidential information. We may already represent parties adverse to you and cannot advise or represent you until we check for conflicts. We are licensed only in Oregon and offer our services only to those doing business in Oregon, unless we are associated with local counsel in accordance with other states laws. The applicable laws may have changed after the information on this website was published. While effort is made to keep the information current, you should not presume that all information is up to date. You must confer with an attorney to be sure you have current information.
Copyright © 2021 · Christopher J. Kane Attorney at Law · 503-380-7822 · Designed by Artizon Digital