The U.S. Court of Appeals for the Fifth Circuit affirmed a $299,980.98 judgment against Michele Anita DiBassie in a bankruptcy fraud case filed by her former business partner, Christopher Reeves. The February 3, 2026 ruling in *DiBassie v. Reeves* upholds a lower court determination that debts arising from alleged fraudulent conduct cannot be discharged in bankruptcy.
The case stems from a business partnership dispute where Reeves sued DiBassie under 11 U.S.C. § 523(a)(4), a federal bankruptcy statute that prevents discharge of debts "for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny." This provision allows creditors to pursue collection of certain debts even after a debtor receives a bankruptcy discharge.
After a bench trial, the bankruptcy court initially ruled in favor of Reeves, finding that DiBassie's conduct fell within the statutory exceptions to discharge. The court awarded Reeves a judgment of $299,980.98, ruling that this debt could not be eliminated through DiBassie's bankruptcy proceedings. The U.S. District Court for the Southern District of Texas subsequently affirmed the bankruptcy court's decision.
On appeal to the Fifth Circuit, DiBassie challenged the lower courts' rulings on two primary grounds. First, she argued that Reeves lacked standing to bring the embezzlement claim against her. Standing is a fundamental requirement in federal court that requires plaintiffs to demonstrate they have suffered an actual injury that can be addressed by judicial relief.
Second, DiBassie contended there was ambiguity in the contract governing their business relationship that should have been resolved in her favor. Contract interpretation disputes often center on whether terms are clear and unambiguous, or whether competing interpretations are reasonable and require additional evidence to resolve.
The Fifth Circuit panel, consisting of Circuit Judges Richman, Engelhardt and Wilson, issued a brief per curiam opinion rejecting both of DiBassie's arguments. The court affirmed the district court's ruling "as to those issues," indicating agreement with the lower court's analysis on standing and contract interpretation.
The ruling represents a significant victory for Reeves, who will be able to collect the nearly $300,000 judgment despite DiBassie's bankruptcy filing. Under normal circumstances, bankruptcy discharge would eliminate most debts, providing debtors with a "fresh start." However, Congress carved out specific exceptions for certain types of misconduct, including fraud and embezzlement.
Section 523(a)(4) of the Bankruptcy Code serves as a critical tool for creditors seeking to hold debtors accountable for fraudulent or criminal conduct. The provision requires creditors to prove their claims meet the statutory elements, which can include demonstrating a fiduciary relationship existed and that the debtor engaged in fraud, embezzlement, or larceny.
The case highlights the complex intersection between bankruptcy law and business partnership disputes. When business relationships deteriorate and result in allegations of misconduct, partners may find themselves in protracted litigation that extends beyond the business dissolution into bankruptcy proceedings.
For DiBassie, the ruling means she remains personally liable for the full judgment amount despite her bankruptcy filing. The debt will survive the bankruptcy discharge and Reeves may pursue collection through traditional means, including wage garnishment, asset seizure, or other collection mechanisms available under state and federal law.
The Fifth Circuit's decision also demonstrates the limited grounds for overturning bankruptcy court determinations after a bench trial. Appellate courts typically defer to trial court findings of fact, particularly when credibility determinations and witness testimony are involved.
The case was filed as No. 25-20170 in the Fifth Circuit and originated as case No. 4:24-CV-00247 in the Southern District of Texas. The court noted in its opinion that the decision is not designated for publication under Fifth Circuit Rule 47.5, meaning it will have limited precedential value for future cases.
Business partnerships considering dissolution should be aware that allegations of misconduct can have lasting consequences that extend beyond the immediate business relationship. Even when one partner seeks bankruptcy protection, certain debts arising from fraudulent or criminal conduct may remain collectible.
The ruling serves as a reminder that bankruptcy discharge provides broad but not unlimited protection for debtors. Courts continue to enforce statutory exceptions that preserve creditor rights in cases involving fraud, embezzlement, and other forms of misconduct that Congress determined should not be dischargeable in bankruptcy.