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Supreme Court Grants Cert to My Morning Drive

posted by Bob Lawless

BankChampaignWhen you live in Champaign, Illinois, it is a surprise to get to work and found out the U.S. Supreme Court has agreed to hear a case involving a business you drive past every morning. This morning was different, however. The Court just granted cert in a bankruptcy case called Bullock v. BankChampaign, No. 11-1518. A debtor filed bankruptcy owing a debt for self-dealing he committed while serving as trustee of his father's insurance trust. A creditor, BankChampaign, objected under section 523(a)(4) which prevents the discharge of debts for "fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny." The debtor acted with his mother's knowledge and on her behalf. The question for the Supreme Court is the level of wrongfulness needed before the discharge exception will kick in. It is hardly the most important issue kicking around the bankruptcy system, but the lower courts had split giving the Supreme Court a reason to act.

There are some unusual facts in the case that, at first blush, make the case less than an ideal vehicle for the Supreme Court to resolve the issue. After the state court had determined the debtor acted wrongfully, it imposed a lien against some real property in Ohio to secure payment of the judgment. BankChampaign is the successor trustee on the insurance trust and hence now controls the lien. The debtor says that he would satisfy the debt against him by selling the property but BankChampaign has blocked sales of the land. The lower court said BankChampaign's later actions did not have any bearing on the wrongfulness of the debtor's conduct at the time of the defalcation. The creditor, however, is seeking discharge of a debt that seems within its power to have satisfied.

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  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.

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