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Denial of Debtor's Motion to Discharge Based on Embezzlement

By FindLaw Staff on April 21, 2010 | Last updated on March 21, 2019

In Re: Sherman, No. 09-1572, involved a challenge to the bankruptcy court's denial of discharge of the $983,000 debt based on its finding that the debtor appropriated the victims' property for his own benefit with fraudulent intent, thus finding the elements necessary to hold the debtor responsible as an embezzler. 

As stated in the decision: "Young is helpful again, in its example of embezzlement by using entrusted money for the recipient's own purposes in a way he knows the entrustor did not intent or authorize.  It is knowledge that the use is devoid of authorization, scienter for short, that makes the conversion fraudulent and thus embezzlement, and it is just this knowledge that the bankruptcy court found that Sherman had as a participant in the conversion."

Thus, while conceding that the bankruptcy judge did not make an express finding that debtor knew the action being taken was unauthorized, the court held that the bankruptcy judge's conclusion leaves no doubt that the judge did so find. 

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