In the second quarter of 2025, a total of 35,114 Canadians filed for consumer insolvency, marking a 2.6% increase compared to the first quarter. While this number is relatively stable when compared year-over-year, it highlights the persistent financial stress faced by many households amid ongoing economic pressures such as inflation and rising debt levels.

What is Consumer Insolvency?

Consumer insolvency occurs when individuals are unable to meet their financial obligations, including credit card payments, personal loans, or even mortgage payments. It typically results in legal filings such as consumer proposals or bankruptcy declarations, depending on the severity of the financial situation.

Filing for insolvency can have significant consequences, including damaged credit scores, reduced borrowing capacity, and long-term impacts on financial health. For those aspiring to homeownership or seeking to refinance existing mortgages, insolvency can create considerable hurdles.

Reasons Behind Rising Insolvency

Several factors contribute to the increase in consumer insolvency filings:

Inflationary Pressures: Despite some easing, everyday expenses such as food, fuel, and housing remain elevated.
Interest Rate Hikes: Higher interest rates increase monthly debt servicing costs, straining household budgets.
Employment Challenges: Job insecurity or reliance on part-time and gig work can lead to inconsistent income streams.
Unexpected Financial Shocks: Medical emergencies, accidents, or other unforeseen expenses may push individuals into insolvency.

These elements create a challenging environment for many Canadians, especially those without significant savings or financial buffers.

Impact on Mortgages and Financial Stability

A history of insolvency significantly affects creditworthiness. Lenders view past insolvency as a risk factor, often resulting in higher interest rates or outright denial of mortgage applications. Even those who recover from insolvency must work diligently to rebuild credit through responsible financial behavior over several years.

Mortgage.Expert recommends that individuals who have faced insolvency focus on:

Rebuilding Credit: Making timely payments, reducing outstanding debt, and maintaining low credit utilization ratios.
Seeking Professional Guidance: Credit counselling and debt management plans can provide structured support.
Budgeting: Tracking income and expenses closely to avoid future financial distress.

Tips to Avoid Insolvency

Proactive financial management is crucial to preventing insolvency. Some useful tips include:

Maintain an Emergency Fund: Aim to save 3–6 months of living expenses.
Live Within Means: Avoid accumulating high-interest debt and overspending.
Communicate with Creditors: Early negotiation can prevent defaults and legal actions.
Use Debt Consolidation Wisely: Combining debts can reduce monthly payments but must be managed carefully.

Looking Forward

While consumer insolvency filings remain a concern, government programs and non-profit organizations are working to improve financial literacy and provide relief options. Awareness and early intervention are key to preventing insolvency and maintaining long-term financial health.