When household debt becomes unmanageable

It’s no secret that Canadian households have, over the past few months and years, been subjected to a series of financial and economic “hits” which have left many such households struggling to maintain their financial stability, or even to meet everyday expenses out of current income. In difficult financial times, individuals and families can and do adjust by cancelling discretionary expenses like an annual vacation, or postponing large expenditures like a new car or a bigger house. What has made the past few years so difficult is that the most significant cost increases have affected precisely the kinds of expenditures which are completely non-discretionary and cannot be deferred – specifically, the cost of food, shelter, and energy.

A recent report by the Office of the Superintendent of Bankruptcy (available at Insolvency Statistics in Canada—First quarter of 2026) shows that many Canadian individuals and families have reached a point where meeting their regular financial obligations is no longer possible and they have declared personal bankruptcy. During the first quarter of 2026 (January to March), the number of personal bankruptcies in Canada rose by 8.5% when compared to the same quarter of 2025. More significantly, perhaps, is the fact that personal bankruptcies for the first quarter of 2026 are at their highest level since the same quarter in 2009 – during the 2008-09 financial crisis.

The significance of these numbers is two-fold. First, bankruptcy statistics are what is known as a “lagging indicator”, in that they represent a measure of conditions which have already occurred or are ongoing – in this case, the significant financial stress being experienced by Canadians. The fact that personal bankruptcies have increased to such a degree and that they are, by historical standards, at such a high level undoubtedly means that many other individuals and families are struggling to avoid having to take the same step.

It makes for a gloomy picture, but the fact is that a declaration of bankruptcy is the very last option to be used by individuals and families who can no longer meet their financial obligations. There are, in fact, many solutions and strategies available to individuals and families who are trying to cope with current economic conditions before a declaration of bankruptcy needs to be considered – and most of those solutions and strategies are available free of charge.

The best first step to be taken by individuals or families who are in financial difficulty is to seek out the services of a non-profit credit counselling agency. Almost every community of any size has a credit counselling agency which can assist individuals and families who are encountering such financial difficulties with strategies to help manage their situation. And, where such an agency does not exist locally, their services can usually be provided online.

Such credit counselling agencies operate on a not-for-profit basis and provide their services at little or no cost to individuals or families. Each such agency is a member of Credit Counselling Canada (to be a member of Credit Counselling Canada, an agency must be accredited and must operate only on a not-for-profit or charitable basis); a searchable listing of member agencies and their locations can be found on the Credit Counselling Canada website at https://creditcounsellingcanada.ca/locate-a-counsellor/?cc=ON. An outline of the kinds of services which are provided by such agencies is available on the same website at https://creditcounsellingcanada.ca/.

While these agencies are called credit counselling agencies, the services which they provide are much broader than the name implies. The services provided include helping clients to develop a realistic budget based on their current financial circumstances and providing advice on money management. In addition, where individuals and families are in financial difficulties, it is often the case that they take on additional debt to cope, and keeping up with that debt eventually becomes impossible, adding another layer of financial stress. Where clients are carrying unmanageable amounts of debt, credit counsellors can help to create a debt management plan (DMP). That DMP could include a voluntary agreement set up by a credit counsellor between an individual and their creditors. People who sign up for a DMP make one lump payment each month to the non-profit credit counselling agency, which then sends all of those funds directly to the individual’s creditors. In most cases, that agreement enables the individual or family to pay off debt over a longer period of time (thus improving cash flow and relieving some financial stress) and sometimes at a lower rate of interest.

It is sometimes the case that the financial circumstances of an individual or family are such that the steps which ultimately need to be taken are outside the ambit of a credit counselling agency – steps like a consumer proposal or bankruptcy. In those circumstances, the agency can provide a referral to a qualified professional in that field.

Where an individual or a family feels overwhelmed by financial stress, it’s inevitable that they will be vulnerable to approaches which promise to make their financial problems disappear. And, unfortunately, there are individuals and companies which are willing to take advantage of that vulnerability – for a fee.

The website of the Financial Consumer Agency of Canada (an agency of the federal government) at https://www.canada.ca/en/financial-consumer-agency/services/debt.html  and https://www.canada.ca/en/financial-consumer-agency/services/debt/debt-settlement-company.html contains a warning about using the services of such “debt settlement companies”, making the following points:

• Companies or agencies can’t guarantee they will solve your debt problems.
• Companies or agencies can’t quickly and easily fix your credit score.
• Companies should not (as they sometimes do) encourage you to take out a high-interest loan to pay off your debts.
• Companies and agencies may misrepresent services they offer as being part of a government program.

These warnings are based on the fact that debt settlement companies are for-profit businesses, not non-profit service providers. They collect fees from consumers who are in financial difficulty, sometimes making unrealistic commitments with respect to what they can accomplish. For instance, while such companies may promise to negotiate with creditors in order to reduce any amount owed, or the interest rate payable on existing debt, the fact is that creditors are not obliged to speak to or negotiate with a debt settlement company with respect to another person’s debts. Debt settlement companies may promise to “fix” a poor credit rating or credit report, but they have no actual power to do so. And the fees charged by such companies will almost certainly have to be paid, even when they don’t actually produce the results they promise.