I've never played this particular challenge, but I have played the original Pinstar's Legacy Challenge. It went wonky on me when I was just reaching the second generation. I forgot about a small clause on the rules I chose for the selection of the Heir. When I learned there was no way for me to go back and restart, since my Founder's wife was a walkby that isn't regenerated (she had died) like the NPCs in houses are. I waited some time and then just began anew.
Since the other player suggested it should be game over due to your circumstances, I am inclined to agree. If you have duplicates of your Sims in your My Library, I would even be inclined to take the same Sims and try again. Best of luck
