Business, Legal & Accounting Glossary

Definition: Defalcation

What is the dictionary definition of Defalcation?

Dictionary Definition

v. from Latin for “deduction,” withholding or misappropriating funds held for another, particularly by a public official, or failing to make a proper accounting.

  1. legal The act of cancelling part of a claim by deducting a smaller claim which the claimant owes to the defendant.
  2. Embezzlement

Full Definition of Defalcation

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.”

Synonyms For Defalcation

embezzlement, misapplication, misappropriation, peculation

Cite Term

To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
Modern Language Association (MLA):
Defalcation. Payroll & Accounting Heaven Ltd. September 21, 2021
Chicago Manual of Style (CMS):
Defalcation. Payroll & Accounting Heaven Ltd. (accessed: September 21, 2021).
American Psychological Association (APA):
Defalcation. Retrieved September 21, 2021, from website:

Definition Sources

Definitions for Defalcation are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 27th April, 2020 | 0 Views.