The Hidden Debt Crisis: What’s Really Happening with Canadian Households in 2025

Based on insights from Doug Hoyes, leading consumer debt expert and co-founder of Hoyes Michalos

If you’ve been feeling financially squeezed lately, you’re not alone. A recent conversation between John Pasalis of MoveSmartly and Doug Hoyes, one of Canada’s foremost experts on consumer debt, reveals a troubling picture of what’s happening beneath the surface of our economy—and surprisingly, it might be worse than the statistics suggest.

The Numbers That Don’t Add Up

Here’s what’s puzzling experts: despite record-high debt levels, rising unemployment, and a challenging real estate market, consumer insolvencies in Ontario haven’t exploded the way many predicted. In fact, they’re only slightly higher than last year.

“What’s most amazing to me is they aren’t as high as I would expect them to be,” admits Hoyes, whose firm has been tracking insolvency trends for nearly 30 years.

So what’s really going on?

The Great Divide: Homeowners vs. Renters

The data reveals a stark reality about Canada’s two-tier economy. Back in 2011, about one-third of Hoyes’ clients were homeowners when they filed for insolvency. By August 2022, that number hit zero—the only time in the firm’s history.

Today, it’s crept back up to around 10%, but that’s still dramatically lower than historical norms.

Why the shift? It comes down to equity. If you bought a house decades—or even just years—ago, you’ve likely built substantial equity that acts as a financial buffer. Need to deal with credit card debt? Refinance, get a HELOC, or sell and pocket the difference.

But if you’re renting? You have no equity cushion whatsoever. You’re the most vulnerable to job loss, inflation, and rising costs.

The Precon Time Bomb

One of the most concerning trends Hoyes discusses is the wave of preconstruction condos that buyers can’t close on. Here’s how the crisis unfolds:

• Buyer purchases a precon condo in 2022 for $1 million with a $100,000 deposit
• Property finally ready for occupancy in 2024-2025
• Current appraisal: $700,000-$800,000
• Bank refuses to provide a $900,000 mortgage on a $700,000 property
• Buyer cannot close

Unlike the United States, Canadian buyers have full recourse—they can’t simply walk away. Builders can sue for their losses, potentially going after your other assets, including your primary residence.

“We’ve got this massive amount of pent-up problems—precons that aren’t closing that have not yet resulted in hardly any bankruptcies because the legal process hasn’t consummated yet,” Hoyes explains. “That’ll be a story for 2026, probably into 2027.”

Why Banks Are Playing the Waiting Game

Another revelation: many borrowers have stopped making mortgage payments on rental properties, yet banks aren’t aggressively pursuing power of sale proceedings.

Hoyes shares the story of a client who stopped paying her rental property mortgage in August—and months later, the bank had done virtually nothing beyond sending a letter.

The theory? Banks may be slow-walking foreclosures to avoid flooding the market with inventory, which would drive prices down further and crystallize everyone’s losses. With many borrowers in similar situations, a wave of simultaneous foreclosures could trigger a broader market collapse.

The Rental Property Trap

The mathematics of rental properties have turned brutal for many investors:

• Monthly shortfall of $1,000-$2,000 was common but manageable when prices were rising $100,000+ annually
• Investors borrowed from HELOCs and unsecured lines of credit to cover the gap
• After 2-3 years of monthly shortfalls, credit lines are maxed out
• Property values have declined or stagnated
• No equity to refinance
• No cash flow to continue

“Unless you’re the federal government, you cannot run a deficit every month forever and not experience the consequences,” Hoyes notes bluntly.

A Generation Locked Out

Perhaps most troubling is Hoyes’ explanation of why gambling, risky investing, and speculative real estate purchases have exploded among younger Canadians:

“If you are 25 years old today, you know that there is no hope that you will ever be able to buy a house unless your parents give you the money. There is no mathematical way you can do it.”

He paints a stark picture: making $80,000-$90,000 annually leaves about $50,000-$60,000 after tax—barely enough to cover living expenses in major Canadian cities, let alone save $200,000 for a down payment.

This sense of hopelessness has driven many toward high-risk strategies: gambling apps, cryptocurrency, options trading, and yes—speculative real estate purchases.

The Leverage Trap

Real estate’s appeal as a get-ahead strategy is rooted in leverage. With just 5% down, a 10% increase in property value triples your initial investment (on paper). You can’t get that kind of leverage in the stock market, where margin requirements are typically 50% or higher.

But leverage cuts both ways. When property values decline by 20-30%, highly leveraged buyers don’t just lose their down payment—they end up owing substantially more than their property is worth.

Warning Signs Ahead

Several trends suggest 2026 could bring more financial pain:

1. Rising bankruptcy rates: The percentage of bankruptcies versus consumer proposals is increasing because people simply don’t have enough income to make payment plans work
2. Debt too high to restructure: Some people now owe so much (particularly on failed precon purchases) that they exceed the $250,000 limit for consumer proposals and must file bankruptcy instead
3. Shrinking cash flow: Unlike previous decades where inflation gradually made fixed payment plans easier over time, today’s rising costs mean those $300 monthly proposal payments get harder each year, not easier
4. Precon lawsuit wave: As builders begin quantifying their losses and pursuing legal action against buyers who couldn’t close, a wave of judgments and garnishments is likely coming

What You Can Do

Whether you’re a homeowner or renter, Hoyes offers practical advice:

Take inventory honestly:

• List all assets (be realistic about current market values)
• List all debts with amounts, interest rates, and minimum payments
• Calculate your actual monthly cash flow

Be realistic about solutions:

• Can you increase income (part-time work, side gig)?
• Can you reduce expenses meaningfully?
• If you’re a homeowner, does selling and renting make sense?
• Could you move in with family temporarily?

Get professional advice early: “Debt problems do not get better on their own magically. It’s just not how it works,” Hoyes emphasizes.

If you’re overwhelmed, speak with a licensed insolvency trustee—they’re the only professionals licensed by the federal government to administer proposals and bankruptcies. About three-quarters of people who contact them end up finding solutions without filing insolvency.

The Bottom Line

We’re in a strange economic moment where the full extent of financial distress hasn’t yet shown up in official statistics. Banks are delaying foreclosures, legal processes are grinding slowly, and many people are simply kicking the can down the road.

But as Hoyes makes clear, this can’t continue indefinitely. The mathematical reality will eventually catch up.

For those feeling squeezed: you’re not imagining it, you’re not alone, and there are steps you can take before things become crisis-level. The key is acting before you’ve exhausted all your options.