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How To Deal With Indebted Or Insolvent Estates

How to Deal with Indebted or Insolvent Estates

The Ontario law dictates that an executor has to be the one to ascertain the debts of the deceased and make sure those are paid before assets from the estate are distributed. If the executor distributes the assets before settling all the debts left behind by the deceased, they can be liable for those debts to the extent of the advanced payment from the estate.

If you’re curious about what happens in such tricky situations, then you are in the right place as in this post, trusted wills and estate lawyers in Ontario, CA, share what happens with indebted on insolvent estates:

What Happens If the Estate Is Unable to Pay Its Debts?

If the estate learns that it is going to be unable to pay off its debt, then the executor will disclose the situation to the creditors. This is done in order to work out a deal that is going to benefit all parties involved.

When the deceased was insolvent at the time of their death, the executor is required to notify the beneficiaries of the insolvency of the deceased.

The beneficiaries are then asked to decide whether to accept a certain amount for the assets for distribution by the executor. These assets are then used to pay off the debts of the deceased. This process is known as a “forced resignation.”

If they do not accept it, then the estate will be distributed to the creditors. The creditors can then sell the assets to generate the money they are owed, in the process going over the amount that was originally owed to them by the deceased.

If there are multiple creditors, then the assets sold from the insolvent estate need to cover all the debts. If there are excess assets remaining after the debts have been settled, then they go to the beneficiaries as specified in the deceased’s will or if there is no will then they go to the successors.

What Happens If the Estate Is Still Unable to Pay All the Debts?

If the estate is still unable to pay off the debt and the beneficiaries are willing to accept less than what the estate is able to pay, then the executor is allowed to offer a settlement agreement that can be agreed upon by the beneficiaries.

If this is not agreed upon and the debt is not settled, then the matter is taken up in court. This can be resolved through a court proceeding known as a creditors’ meeting. This is where a judge will decide on the distribution of the assets of the estate.

What the Family of the Deceased Needs to Understand

If the estate is unable to pay off all the debts, then the family of the deceased is in for a double blow. After the death of the deceased, they have to deal with the funeral arrangements which are quite an expense.

There is also another concern in these proceedings. The executor of the will may have to sell the assets of the deceased for a lesser price than their value. It is the duty of the executor to settle the debts of the deceased. However, the executor cannot go beyond the boundaries of what the estate can afford.


If your family needs to handle a situation where the estate of the deceased is insolvent, then they need to know that the distribution of assets is not going to be easy nor is it going to be fast. The process will take time and there are a lot of complications that might arise during the process. Wills and estates are complicated, especially if the deceased had left a lot of debts that need to be settled.

You can take full advantage of the help of trusted probate lawyers in Ontario, CA, from Ontario Wills who will be able to guide you through the process of distributing the assets and paying debts left by the deceased. Contact us today to schedule a consultation!

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