Have you filed for bankruptcy or a consumer application and would you like to inherit? Did a loved one declare or file for bankruptcy but die before being discharged? Here you can find out what consequences the inheritance will have.
Different situations can arise depending on whether the insolvency practitioner is the heir or, on the contrary, whether it is the insolvency practitioner who has died.
Bankruptcy and life insurance beneficiary
If you are insolvent and are the beneficiary of the deceased’s life insurance settlement, it will be fully included in the bankruptcy file. “If it is sufficient, the compensation will be used to pay off all debts as well as an interest rate of 5% per annum and the bankruptcy costs,” explains Pierre Fortin, licensed insolvency practitioner and president of Jean Fortin & Associates. The remaining balance will of course be returned to the beneficiary, who can either cancel their bankruptcy by submitting a consumer proposal or an application to the court, or wait until the bankruptcy follows its normal course and ends at the end of the usual procedure.
Bankruptcy and you inherit assets
If there is no will and the insolvent person must inherit property and assets, be aware that these will be confiscated and used to settle debts, pay interest and costs related to the bankruptcy. The remainder is then handed over to the heir.
Good to know: If there is a will, it may contain a clause exempting you from seizure. For this reason, the property may not be seized depending on the circumstances. However, this clause must be published as soon as possible after death.
Consumer proposal and inheritance
The good news: If you have made a consumer proposal, it will not affect the property or assets you receive as part of an inheritance. “The inheritance belongs to the debtor and he may be able to repay the application more quickly,” explains Pierre Fortin.
The bankrupt died
What happens to their estate if the deceased files for bankruptcy? “The trustee is the representative of the creditors and informs the insolvency administrator of the amount of the debt. These must be paid by the insolvency administrator from the estate, as well as interest and insolvency costs,” mentions Pierre Fortin. The rest is distributed to the heirs.
If there is no insolvency administrator or the insolvency administrator resigns, the Unclaimed Inheritance Department of Revenu Québec will take over the file. He liquidates the assets, pays the new creditors and transfers to the trustee the amounts he needs to carry out his administration. If there is any surplus left over, this will also be distributed to the heirs.
The insolvency administrator leaves the life insurance company
If the insolvency administrator has named a beneficiary of his life insurance compensation, this has no effect and the compensation will be paid directly to the beneficiary. On the other hand, if no one has been named and the compensation goes into the estate, in this case it will be used to pay off the debt.
The deceased made a consumer proposal
In this scenario, the property has two options. “Either it continues to pay the consumer proposal or it stops,” says Pierre Fortin. Be careful, it may be worth continuing and completing payments to continue benefiting from the advantageous terms of the proposal, usually a debt reduction.
If the application fails, the estate will not be released and higher debts may remain. Retroactive interest will also be added to the invoice.
ADVICE
· The Civil Code of Quebec imposes heavy responsibilities on heirs who, if they take certain actions, are deemed to have accepted the inheritance, including debts. Get information from an attorney to avoid mistakes that could cost you dearly.
· If the estate has more debts than assets, it is possible to have them forgiven to avoid inheriting the deceased’s debts. This procedure can only be carried out by a lawyer.
· If the deceased submitted a consumer application, the law provides that if the trustee does not receive the scheduled payment for three months, the application will automatically fail, which can lead to unfortunate consequences. If you know that the deceased has filed for bankruptcy or filed a consumer proposal, call the bankruptcy trustee as soon as possible.
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