Mounting cash-flow pressure is pushing more Canadians into insolvency, with total filings rising 10.6% nationwide and 7.6% in Ontario, according to new data from Hoyes Michalos based on Office of the Superintendent of Bankruptcy records.
Bankruptcies gained momentum as well, rising 19.1% across Canada and outpacing the rise in consumer proposals, signalling a shift in how borrowers are managing growing financial strain.
Hoyes Michalos says the trend reflects mounting cash-flow pressure among borrowers whose budgets are no longer balancing.
“Living expenses for many people are rising faster than incomes, and they bridge the gap by using debt to survive, but eventually they fall behind, and they can’t catch up,” Doug Hoyes, Licensed Insolvency Trustee and co-founder at Hoyes Michalos, told Canadian Mortgage Trends.
Insolvency growth picks up as refinancing options narrow
Hoyes says the third-quarter increase reflects what the firm has been seeing throughout 2025, with more clients carrying routine expenses on credit, then falling behind as payments pile up. He adds that tightening housing conditions are increasingly part of the problem.
“In the past, homeowners could use their increasing home equity to refinance, but now that real estate prices have plateaued, and in some markets fallen, that option no longer exists, leaving insolvency as a viable option,” he said.
Bankruptcies gain momentum, led by renters
While most insolvent borrowers still opt for consumer proposals, which allow them to keep assets under a negotiated repayment plan, bankruptcies are starting to make up a larger share of filings.
In September, proposals accounted for 80.4% of all insolvencies in Ontario and 78% nationally, but the pace of bankruptcies is now accelerating.
Hoyes says the increase is still “primarily renters,” who typically have less home equity to draw upon and are more vulnerable to income pressure.
“In a bankruptcy, the bankrupt is required to pay a portion of their surplus income,” he said. “As incomes stagnate and unemployment increases, there is less surplus income, and therefore a bankruptcy is not as punitive as it was when incomes were higher.”
At the same time, as home equity declines, fewer indebted homeowners need to file proposals simply to protect property value, a factor Hoyes says is contributing to the recent rise in bankruptcies.
Homeowner strain deepens even as mortgage arrears remain low
Mortgage arrears remain low at just 0.24% of bank-issued residential mortgages were three months or more past due at the end of August. But Hoyes says that figure masks wider stress among homeowners.
The Hoyes Michalos Homeowners Bankruptcy Index, which tracks the proportion of insolvent debtors who own a home, fell to 7.2% in September. Despite the lower reading, Hoyes says stress is rising among mortgage holders, particularly renewal-stage borrowers, pre-construction buyers and small landlords.
“There was a boom in pre-construction sales from 2020 through 2023, and many of those projects are now completing at substantially lower values,” he said.
“It’s impossible for many pre-con buyers to qualify for a mortgage, so they’re walking away from deposits,” he added. “The story in 2026 will be the number of pre-con defaults that result in substantial lawsuits against the purchaser.”
Landlords are facing a similar squeeze as higher mortgage rates, softer rents and weaker short-term rental demand leave many with negative cash flow.
Hoyes notes that many borrowers keep mortgage payments current by falling behind on other obligations, a pattern reflected in rising insolvency filings and higher 90-day-plus delinquencies across several credit types.
Looking ahead, he expects more homeowner filings in 2026. Modest rate cuts, he says, are unlikely to meaningfully improve housing affordability. He points to the historical range of the Homeowners Bankruptcy Index, still well below its 2011 peak, as an indication that filings could climb further if income and housing pressures persist.
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Last modified: November 24, 2025