How Debt Relief Works: An Insolvent Estate Case Study
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Imagine going your whole life avoiding bankruptcy, only to have your estate go bankrupt after you pass away.
It can happen, and when it does it’s a good thing, because it means that your financial situation gets resolved without your loved ones having to deal with your financial problems indefinitely.
Of course, people don’t usually leave their financial problems to their loved ones intentionally. Sometimes, they die unexpectedly in the midst of a plan to turn their financial situation around. Sometimes, their death results in a deficiency of assets to cover unsecured debts, as a result of certain property automatically transferring directly to a named beneficiary or joint owner. Other times, debts arise after a person passes away, perhaps as a result of unfinished business, or during end-of life due to medical costs.
Regardless of how an estate became insolvent, or what the will (or lack thereof) says, the impact of the financial distress will usually fall on someone else, such as an executor or a spouse. While this doesn’t typically mean those individuals are personally responsible for the debt (unless, for example, they are a co-signor), it can still be daunting for them. If the estate is insolvent – meaning the liquidation value of the assets is lower than the amount of debt owed – any actions loved ones take to deal with the assets is not only subject to scrutiny by the creditors, it is of little benefit to them personally. Beneficiaries won’t receive an inheritance; only the creditors stand to gain from asset liquidation activities in such a scenario.
It isn't always necessary to put an insolvent estate in bankruptcy. However, when there is a lot of work to do and/or creditors are impatient, those left in charge often find relief from doing so. In bankruptcy, the work of liquidating assets and communicating with creditors is handed to a Licensed Insolvency Trustee (LIT).
One of the hardest things about being an LIT is hearing stories and knowing that people could have gotten help earlier. Often, those handling an estate have struggled to deal with the situation on their own for a while before they reach out to us. That’s because many people know nothing about debt relief or LITs. Therefore, we’re continuing our series of blog posts highlighting some of the people we’ve helped and their situations* in case the reader sees themself, a client, or someone they care about in these stories, in the hope that this may spur them to reach out for help.
*Names and other details have been changed to protect the confidentiality of the individuals whose stories we tell
Juliet
Juliet was a long-time, moderately successful business owner who accumulated a lot of “stuff” but generally lived within her means. She had largely paid off her home, but had no other major assets. She had leveraged her business by taking on some debt, but had no concerns about paying it off before she retired, as her business generated steady income.
However, Juliet suddenly passed away several years prior to retirement. Her business, which was fully dependent on her connections and experience, immediately ceased operating and was unable to pay its debts, which she had personally guaranteed.
Juliet had long ago jointly purchased her home with her adult child, so the home was not an asset of her estate, having transferred directly to the joint owner upon her death. This left only the company’s remaining physical assets and Juliet’s personal belongings to cover the business debts she had guaranteed. Her executor soon realized that dealing with those assets was going to be a lot of work, as it wasn’t clear which assets had value, and many were sitting in a rented shop that the landlord wanted cleared out immediately.
In addition, Juliet had left a lot of paperwork behind which pointed to bank accounts and debts which the executor hadn’t known about. The executor didn’t know where to start, and felt disheartened as it was clear that efforts to deal with the assets would only partially repay the creditors and leave nothing for Juliet’s family.
A lawyer suggested they speak to a Licensed Insolvency Trustee about putting the estate into bankruptcy so that the Trustee could deal with the assets and the creditors in an orderly manner. We met with Juliet’s executor, and ultimately we were entrusted with the estate. We engaged professionals to properly and quickly liquidate the assets. We also reviewed Juliet’s paperwork and contacted her creditors to determine who had entitlement to the funds.
This took a huge load off the shoulders of Juliet's estate's executor, and it also gave her family comfort that her belongings and financial affairs were handled professionally. The creditors also benefited from the orderly liquidation of the assets which likely resulted in a better, and certainly faster, recovery, and a fair allocation to each of them.
Don’t delay getting help
Too many people delay coming to see a Licensed Insolvency Trustee, spending months, years or even decades struggling to resolve financial messes, because they don’t reaize there is another way. If you are struggling to deal with an insolvent death estate and want to explore your options, we can help. Charla Smith & Company is a Calgary-based Licensed Insolvency Trustee, serving the southern Alberta region. We regularly help individuals navigate their options for dealing with insolvent estates. If you'd like a free, no-commitment consultation to review your options, contact us.
Disclaimer: This publication provides general information and should be seen as broad guidance only. The information contained herein cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon this information without obtaining specific professional advice relating to your particular circumstances. Charla Smith & Company Ltd. does not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.
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Frequently Asked Questions
Bankruptcy is a legal way to get some or all (depending on your financial situation) of your debt forgiven when you can't pay it. For more information, see our bankruptcy page or contact us.
An individual who has made an assignment in bankruptcy, or otherwise has been adjudged or deemed bankrupt, and who has not yet received their official discharge from bankruptcy is considered an "undischarged bankrupt". An undischarged bankrupt cannot act as a director of a corporation or obtain credit, and will have bankruptcy obligations that remain ongoing.
If you have been bankrupt and are unsure whether you have been discharged from the bankruptcy, you can find out by conducting an insolvency records search on the Office of the Superintendent of Bankruptcy's website. To do so, you must create an account and pay a fee, which is currently set at $8. Another option is to call your Trustee to find out.
Nothing. We offer free consultations to anyone looking to review their options for dealing with their debt. If we decide together that one of the services we provide is the right option for you, there will be payments you need to make in connection with that, but that will occur only after you have made a decision and signed the formal documents.
Reach out to us. You can make an inquiry directly from our website by clicking here, or you can call or text us at 1-403-899-3890. We will respond quickly, and work with you to find a good time for the meeting.
Often no one finds out unless you tell them. Most bankruptcies do not have to be advertised in the newspaper and, while any bankruptcy filing goes on the public record, someone would have to search for it (and pay a fee) to find that record.
When a business owner decides not to file bankruptcy but to instead just shut the business down, there are certain things that need to be done to shut it down cleanly: selling remaining assets, laying off employees, dealing with the landlord, communicating with creditors. It's understandable that this seems overwhelming after everything you've been through. This is where it can make sense to find a way to fund the cost of the bankruptcy or to cooperate with a secured creditor who might be considering appointing a receiver. Absent such a formal engagement, a Licensed Insolvency Trustee can give you referrals to others that might be able to help, such as an auctioneer that can deal with the assets or a lawyer that can help you manage responses to creditors. Contact us if you'd like to explore this option.
YOUR TRUSTED CHOICE FOR DEBT RELIEF
With our experience and our caring approach, we will help you find the best option for debt relief based on your unique situation - from advice on talking to your creditors to a consumer proposal or bankruptcy, and everything in between. We are here to lift the burden caused by overwhelming debt.
Contact us today at 1-403-899-3890 for a FREE, no-commitment meeting, and let us guide you to regaining your financial footing.
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