What to do if a person in a consumer proposal or bankruptcy passes away?

The death of a loved one is always a very difficult period and one which raises several legal issues. What happens if, in addition, the deceased was in bankruptcy or in the process of completing a consumer proposal?

General rule

When a person dies, their estate must repay 100% of their debts before the estate can distribute the inheritance to the heirs. Thus, if the debts exceed the value of the assets, all the money will go to the deceased’s creditors. Inheritances in general can have important financial consequences for the heirs; consulting a notary or lawyer can avoid mistakes.

In the case of a deceased person in bankruptcy or who has filed a consumer proposal, it is the trustee who acts as the legal representative of the creditors. It is therefore essential to notify the trustee of the death as soon as possible. S/he will request the death certificate as proof and the contact information of the person responsible for managing the estate.

Consequences when dealing with a bankruptcy

Death does not terminate the bankruptcy. In this case, the trustee will calculate the total amount of debts and expenses owed and inform the estate. If the estate is able to pay the amounts due, the trustee, depending on the circumstances, will receive the money, request the discharge of the bankruptcy, distribute the money to the creditors and close the file. The estate will then be free to continue its administration as if there had never been a bankruptcy.

Consequences when dealing with a consumer proposal

The person in charge of the estate can decide whether it is necessary or desirable to maintain the proposal «active» or not. In the affirmative, the estate will pay the balance of the proposal amount and the trustee will issue a discharge. The estate can then continue its administration as if there had never been a proposal. The advantage of maintaining the proposal rather than canceling it is that the amount to pay will not be the total amount of the debts included in the proposal but rather the reduced amount negotiated in the proposal.

Note that the death of a person does create an automatic default in the proposal but time alone can create a default if there are 3 missed payments. If the estate wishes to keep the proposal in force, it is important to quickly communicate with the trustee in charge of the proposal to know the steps to follow.

Conclusion

As an officer of the court and a professional, the trustee is a valuable ally to help you understand the process and consequences of a bankruptcy or consumer proposal of a deceased person. However, given the significant responsibilities involved in dealing with an estate, the trustee does not replace the advice of a notary or lawyer, who are the only ones able to provide legal advice and ensure that you comply with the many legal obligations imposed by estate management.

For any questions regarding a file for which we are responsible, do not hesitate to contact us at 1 877 777-2433 or at succession@jeanfortin.com. It is free, confidential, and without obligation.

To learn more about rights and obligations in the event of a death, we invite you to read a very interesting document prepared by the Government of Quebec.