Real-life case – An inheritance that could be loss to debts

Denis, 49, a father of two children still in school, saw his finances capsize after his divorce. If that wasn’t enough, he loss his job four months after.

The inheritance left by his recently deceased father, however, could help him get back on his feet. But his creators did not intend to let that happen…

Separated for a year and after 8 months of unemployment, Denis fortunately found a job as a cook in a seniors’ residence. But his situation remains very precarious: he has a balance of $7,000 on his credit card, $18,000 on his line of credit, and he also owes $6,500 to the Revenue Canada Agency, for a total of $31,500. Of course, his new job helps him get back on track, but his income is far from sufficient to quickly pay off his debts.

After fighting pendant 2 years against cancer, his father has just died, leaving approximately $50,000 for Denis and his sister to share. But have access to the money, the family home had to be sold and that, along with the income tax returns could take up to a year to settle. Meanwhile, Denis fears that the creditors will seize his share of the inheritance. Above all, the idea that the money his father has saved all his life is used to pay off his debts breaks his heart.

Can creators get their hands on an inheritance?

What solutions are available to Denis? To find out, he went to see a specialist.

“He wondered if he should consider a bankruptcy, a consumer proposal, if it was possible to make an informal agreement with his creditors and what could happen if he decided not to do anything,” explains Pierre Fortin, Licensed insolvency trustee and president of Jean Fortin et Associés.

A detailed analysis of its situation revealed that its debt ratio is 62%, well above the 40% normally tolerated by financial institutions. Therefore, a consolidation loan was not an option.

Technically, all assets belonging to a debtor are subject to seizure by one’s creditors. Certain exceptions exist, especially when inheritances are concerned and wills are involved. Generally speaking, creditors must first obtain a judgement to confirm their debt and they can thereafter garnish wages and seize assets. “However, the Canada and Quebec Revenue Agencies can act more quickly and without much red-tape, “warns Pierre Fortin. Denis’ inheritance could therefore be in jeopardy if he decides to ignore his creditors.

Can a settlement be considered?

The preferred course of action in Denis’ case was to negotiate a settlement. This was also in the creditors’ best interest because they avoided lengthy and costly court proceedings.

Denis chose to file a consumer proposal and offer his creditors 50% of the inheritance to be received in due course. By offering them a percentage rather than a fixed amount, he protects himself in case the net sum is less than expected.

After negotiations, his creditors accepted a sum representing 60% of the net inheritance. Once he receives his share of the estate money, Denis will have to give 60% of the estimated 25 000$ share to the trustee who will distribute it amongst the creditors. So, by paying approximately 15 000$ (60% of 25 000$), he will have cleared a total of $31,500 of debts.

ADVICE

• Placing yourself “under the protection of the law” means that no legal proceedings can be taken against you by creditors, including the Revenue agencies, and that no additional interest charges will be added to the amounts of your debts.
• Using the Bankruptcy and Insolvency Act is never the first option to consider, but when the financial situation is precarious and no other option is possible, do not hesitate to use it. That is what it was intended to do.

**The names have been changed to protect their identity.**