What to do when a loved one dies and the estate is insolvent?

A succession is insolvent when there are not enough assets to pay the debts to creditors of the deceased.

Did you know that there are many ways to treat the liquidation of an insolvent estate? The choice is yours as heir and liquidator. Indeed, you can either follow the procedure described in the Civil Code of Québec, leave the Ministry of Revenue to support the settlement of the estate or you can use the services of a bankruptcy syndic. We will discuss these three methods in detail.

Regarding the first method, you can process the liquidation of an insolvent estate according to the Civil Code of Québec. According to Article 811 of the Civil Code of Québec, “if the property of the succession is insufficient, the liquidator may not pay any debt or legacy by a particular title before drawing up a full statement thereof, giving notice to the interested persons and obtaining homologation by the court of a payment proposal which contains a provision for a reserve for the payment of any potential judgment”. Thus, the liquidator shall submit a proposal of payment to the creditors and it must be approved by the court before the liquidator can dispose of any property of the deceased. This process usually requires you to retain the services of a notary or lawyer.

Regarding the second method, when all the heirs renounce the succession, you must contact the Ministry of Revenue, more specifically the Department of unclaimed property and make a request to the body. The Ministry of Revenue will cover the settlement of the estate.

Finally, with regard to the third method, a bankruptcy syndic can take care of the liquidation of the insolvent estate by placing it bankrupt. Rather than following the procedure of the Civil Code of Québec, the trustee will comply with the federal bankruptcy laws. By entrusting the estate to the trustee, the liquidator and the heirs are not liable for the debts that the deceased owed to its creditors. In addition, dealing with a syndic generally allows you to liquidate the insolvent estate faster and ensure that funeral expenses as well as the management fees will be paid.

Text written by Me Marie-Josée Gingras / Translated by Andrey Leshyner