What Is Defalcation? The term defalcation primarily refers to an act committed by professionals who are in charge of handling money or other resources. This typically entails the theft. misuse, or misappropriation of money or funds held by an ofcial trustee, or other senior-level duciary. As such, it's considered a form of embezzlement. either through the misallocation of funds, or the failure to account for received funds