If you are struggling to repay money you owe and have stopped making payments towards your debt, you may have been threatened with a wage garnishment.
A wage garnishment is a common tactic used by creditors in Canada to ensure they receive the money they are owed but it can come as a bit of a surprise if you don’t know what it means or what the legal process entails.
In this article, we’ll outline what a wage garnishment is, why you might have received a wage garnishment, how a wage garnishment works, how much of your wages can be garnished and how to stop a wage garnishment.
What is a wage garnishment (Canada)?
A wage garnishment, or garnishee order, is a court-ordered deduction that is administered when your creditors have been unsuccessful in recovering the money they are owed through alternative means and apply to the court to recover the debt directly from your wages or bank account.
The only types of income that can’t be garnished are employment insurance, social assistance and pensions.
If you have been issued with a wage garnishment, a portion of your wages will be set aside to be sent to your creditors directly every time you get paid.
The money will be sent by your employer and the amount will depend on how much you get paid and how much money you owe.
Because your creditor has had to take legal action to recover the money they are owed, they may also incur extra fees on top of the debt owed and, in most cases, will be unwilling to negotiate smaller payments.
Being served with a wage garnishment out of the blue can be scary but knowing what to expect can help ease your mind and allow you to put plans in place to ensure you are financially prepared.
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Why have I received a wage garnishment?
If you have received a wage garnishment, it means a creditor has applied to the court to forcibly recover debts they are owed from you.
Anyone you owe money to can apply for a wage garnishment including payday loan lenders, debt collection agencies and credit card companies
How does a wage garnishment work?
The wage garnishment process is relatively similar in each province. Here is what you can typically expect when you are served with a wage garnishment in Canada:
Your creditor issues a Statement of Claim
First, your creditor will issue what is known as a Statement of Claim. This is a document that outlines information on what they are claiming and why they should be granted a judgment from the court.
You will be notified that a Statement of Claim has been filed and will have 21 days to respond. If you don’t respond, the court will favour the creditor and begin legal proceedings.
If you believe a Statement of Claim has been filed in error or a mistake has been made, you can counteract the claim by filing a Statement of Defense. The court will then review the evidence and make a decision.
The court issues a judgment order
If you are notified of a Statement of Claim and don’t respond or dispute the claim within 21 days, the court will issue a judgment order. This, essentially, gives your creditor the power to take further legal action and apply for a wage garnishment.
The only situations in which a creditor is not required to obtain a court order before they can garnish your wages is if you owe money to the Canada Revenue Agency (CRA) or have agreed to an assignment of your wages to a credit union.
Your employer is informed
When a wage garnishment has been issued, your employer will be informed and instructed to set aside a portion of your wages every month to be sent to your creditor or collection agency.
Your employer must legally comply with the order and will usually notify you of the wage garnishment before it happens.
Your wages will be garnished
Your wage garnishment will begin immediately and your next payslip will outline the amount sent to your creditor to cover the unpaid debts.
There may still be time to dispute the wage garnishment at this point (e.g. if your address changed and you didn’t receive prior notice) but it can be difficult if payments have already begun.
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How much of my wages can be garnished?
In Canada, there are provincial limits on how much of your monthly net income can be garnished.
Here is a guide to how much of your wages can be garnished depending on where you live:
In British Columbia, creditors can legally garnish up to 30% of your monthly net income.
In Ontario, creditors can legally garnish up to 20% of your wages. This limit is increased to 50% if you owe child support.
In Alberta, the first $800 of your wages is protected. For wages between $800 and $2400, creditors can garnish 50% whilst anything above $240o can be seized completely.
There is also an exception of $200 for each dependent. So, if you have one child, the first $1000 is protected.
Can I stop a wage garnishment order?
If you want to put a stop to a wage garnishment issued against you, you have a couple of options.
Firstly, you can stop wage garnishment by agreeing to an alternative debt relief option such as filing for bankruptcy or entering into a consumer proposal with a Licensed Insolvency Trustee (LIT).
This will stop any wage garnishments issued against you almost immediately regardless of what stage of the legal process you are at and allow you to work with a debt professional to reorganise your finances and repay the debt through an arrangement that you and your creditors can both agree on.
Alternatively, if you are in a position to do so, you can also pay off your debt in full. This is, understandably, not an option for everyone but will ensure your creditor receives the total amount of money they are owed and release you from your debts, essentially ceasing all debt collection efforts against you.