Wage garnishment occurs when an employer is required to withhold an individual’s earnings for the payment of a judgment based on a court order or the order of a government agency (i.e. the CRA). If you’re being threatened with garnishment, or if your wages are being garnished, don’t panic. Here’s what you need to know about garnishment and how to avoid or stop it altogether.
Wage garnishment 101
A creditor has to follow certain procedures in order to garnish your wages. They must first file a suit in court to obtain a garnishing order. They also have to show exactly how much you owe. If a creditor wins the suit, they can petition the court to have your wages
garnished. You should know the only creditor not required to file a petition to the court is the Canada Revenue Agency. The CRA has the power to create a garnishment without the backing of the court.
If the court rules in your creditor’s favor, a portion of your paycheck will be taken. This money goes to the court, which then remits it to your creditor. In most cases, a creditor has to issue a new garnishing order every pay period, which makes it a slow, often expensive process for the creditor.
There are laws that protect you if your wages are being garnished. Legally, your employer can’t fire you for a wage garnishment. The law typically restricts garnishing orders to a maximum of 30% of wages (though child or spousal support claims can attach up to 50% depending on the debtor’s income and the number of dependents). If the garnishment creates a serious financial hardship, you can petition the court to have it reduced or released to a payment plan that you control.
Stopping a garnishment
If your wages are being garnished, or you are being threatened with garnishment, there are only three ways you can stop it:
- Pay the debt. If you pay the debt in full, you can stop the garnishment. However, if the debt is so behind or so large that garnishment is occurring in the first place, this usually isn’t an option for most people. In some instances, you can negotiate with your creditors to remove the garnishment, but it’s unlikely they’ll agree. A garnishment ensures they will receive payment.
- File a consumer proposal. A consumer proposal is a legal agreement between you and your creditors that allows you to settle your debts for less than you actually owe. With this arrangement, you make one monthly payment for all your debts over a period of up to five years. Once you file a consumer proposal, all collection activities against you for your unsecured debt stops, including garnishment. Only a licensed bankruptcy trustee can prepare a consumer proposal.
- File for bankruptcy. Filing for bankruptcy also stops wage garnishment, as well as any other collection attempts. Unlike a consumer proposal, a bankruptcy erases your debts, but you may be subject to surrendering your assets.
It’s important to note if your wages are being garnished for child support or spousal support, a consumer proposal or bankruptcy will not stop the garnishment.
Wage garnishment can make an already difficult financial situation even harder to bear. If your wages have been garnished, or if they are about to be, it’s a good indication that your financial situation is out of control. A visit to a licensed bankruptcy trustee can help you protect your wages and get back on track.
PBC Member Trustees are part of a network of carefully selected, licensed trustees licensed by the government to help Canadian citizens. The initial consultation is free. Any trustee fees for bankruptcy or consumer proposals are regulated by the Canadian government.