In a recent case decided by the Bankruptcy Appellate Panel for the 9th Circuit, the court refused to discharge a debt incurred by the debtor who previously acted as the administrator of an estate. 

The debtor, a criminal defense attorney, was appointed by the probate court to administer a multi-million dollar estate.  She lacked experience to handle the estate but did so anyway.  She failed to timely file and pay estate taxes, which resulted in penalties in excess of $400,000 for which a surcharge against her was awarded.  

Because she was bonded, the bonding company also obtained a judgment against her.  When she filed for chapter 7 bankruptcy protection, the estate beneficiary and bonding company filed a complaint to make the judgment non-dischargeable.  The bankruptcy court agreed with the beneficiary and bonding company, and refused to discharge the debts.  The appellate panel affirmed the bankruptcy court's decision finding that there was clear evidence that the surcharge judgment against the debtor stemmed from her "defalcation while acting in a fiduciary capacity " and finding that a fiduciary who breaches her fiduciary duty without actual knowledge of wrongdoing but with conscious disregard or willful blindness to a substantial and justifiable risk is not entitled to a discharge.  

The panel was not the least bit sympathetic to the debtor, whom it found was well aware of her responsibilities but, among other things, tried to pin the blame on the accounting firm she hired to prepare the estate tax returns and found other examples of her gross negligence in performing her fiduciary duties.  

The moral of the story is that if you undertake to act as trustee of a trust or personal representative of an estate, you should not do so lightly.  You will be held personally responsible by the court if you breach your fiduciary obligations.

(Heers v. Parsons; In Re Heers US Bankruptcy Panel-Ninth Circuit; No. 14-1468; April 15, 2015)