Insolvent Estate in Quebec: What Should You Do?

When someone dies, their debts do not automatically disappear. They become part of the estate and must be considered alongside the deceased’s property and other assets.

If the debts exceed the value of the property left by the deceased, the estate may be considered insolvent. In this situation, the heirs and the liquidator must proceed carefully before making any decisions.

Depending on the circumstances, several options may be considered, including accepting the succession, renouncing it or, in some cases, filing the estate for bankruptcy.

What Is an Insolvent Estate?

An estate is insolvent when the deceased’s debts exceed the value of the property and assets available in the estate.

For example, a deceased person may leave behind:

• Credit card balances;

• Personal loans or lines of credit;

• Tax debts;

• A mortgage;

• Unpaid bills.

At the same time, the value of their bank accounts, investments, vehicles, real estate and other property may be insufficient to repay all creditors.

The liquidator must therefore establish a complete picture of the estate’s financial situation before distributing any property to the heirs.

How Can You Determine Whether an Estate Is Insolvent?

One of the first steps is to prepare an inventory of the deceased’s assets and debts.

The liquidator should review:

• Bank accounts and investments;

• Properties and other real estate;

• Vehicles;

• Loans and lines of credit;

• Credit cards;

• Tax debts;

• Bills and other financial obligations.

When the total debts exceed the value of the available assets, the appropriate solution must be determined before proceeding with the liquidation.

What Are the Options When an Estate Is Insolvent?

There is no single solution that applies to every insolvent estate. The best option depends on the value of the assets, the nature of the debts and the heirs’ circumstances.

Accepting the Succession

As a general rule, an heir is not required to pay the deceased’s debts beyond the value of the property they receive, provided the estate is liquidated in accordance with the applicable legal requirements.

However, heirs may face additional liability in certain situations, particularly if the rules governing the estate inventory or liquidation are not followed.

Renouncing the Succession

An heir may also decide to renounce the succession.

In Quebec, the renunciation must meet certain formal requirements and be completed within the prescribed time limits. The general deadline to accept or renounce a succession is six months from the opening of the succession, which usually occurs at the time of death.

Considering Bankruptcy of the Estate

When an estate is clearly insolvent, bankruptcy may sometimes be an appropriate solution.

Under the Bankruptcy and Insolvency Act, the liquidator may, with court authorization, assign the property of an insolvent estate for the benefit of its creditors.

A Licensed Insolvency Trustee can then administer the process established by law.

How Does the Bankruptcy of an Estate Work?

Bankruptcy allows the estate’s assets and debts to be handled within a structured legal framework.

Generally:

• The estate’s financial situation is analyzed;

• Court authorization may be obtained when required;

• A Licensed Insolvency Trustee takes control of the assets covered by the bankruptcy;

• Creditors are notified;

• The assets are realized in accordance with the applicable rules;

• The available funds are distributed to creditors in the order established by law.

This solution may make it easier to administer an estate involving numerous creditors or when it is clear that the available assets will not be sufficient to repay all debts.

Dealing With an Insolvent Estate? Speak With a Mallette Trustee

If you are the liquidator of an estate and its debts exceed the value of the available property, our Licensed Insolvency Trustees can assess the situation and explain the available options.

Speak with an advisor at no cost to determine whether bankruptcy of the estate is an appropriate solution for your situation.