What are the options when an estate is insolvent?

An estate is considered insolvent when the value of its debts exceeds the value of its assets, such that it is unable to pay all creditors or fulfill specific bequests.

If you are the liquidator or the heir of an insolvent estate, there are several options to consider. 

1. Renounce the estate

An heir may renounce the estate by signing a declaration of renunciation before a notary. The heir will then not be liable for the estate’s debts.

 2. Liquidate the estate

Renunciation is not always the most advantageous solution. For example:

• the heirs wish to retain or repurchase certain assets of the estate, such as a residence, a vehicle, land, or works of art;
• the surviving spouse owes a debt to the estate following the liquidation of the family estate and the marital property regime;
• the estate holds assets whose sale could satisfy the creditors’ claims, in whole or in part.

In these situations, the heirs may request that the liquidator continue the liquidation of the estate in accordance with the Civil Code of Québec.

To ensure that the heirs’ liability is limited to the value of the property they receive, the liquidator must, in particular:

• prepare a complete inventory of the estate’s assets and liabilities;
• publish a notice of the completion of the inventory in the Register of Personal and Real Property Rights (RDPRM);
• publish a notice of the completion of the inventory in a newspaper circulated in the locality of the decedent’s last residence.

When the estate is insolvent, the liquidator must also:

• prepare a statement of debts and specific bequests;
• prepare a payment proposal for creditors and specific legatees;
• have this proposal approved by the court before proceeding with any distribution or payment. 

When the estate does not have sufficient assets to allow for a realistic payment proposal to creditors, the liquidator may, with the assistance of a licensed insolvency trustee, declare the estate bankrupt.

Bankruptcy allows the estate to be liquidated in accordance with the Bankruptcy and Insolvency Act and, in most cases, relieves the heirs and the liquidator of any personal liability for the estate’s debts.