How Debt Relief Works: An Insolvent Estate Case Study

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 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.

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.