One of the most powerful collection tools that a creditor has is the ability to take a part of a person’s wages by obtaining a court order known as a garnishment or a wage assignment. Most people want to repay the money that they owe and would happily do so if they could. But that is not always possible. That’s when a collection agency or the original creditor (the people you owe money to) act in the courts to seize funds from you so they can get paid. These collection efforts may be legal and allowed, but they can make you feel frustrated.
Learning more about these topics will help prepare and guide you to understanding the options available to you to fight back if one of these legal actions occur and put a major dent in your paycheque.
What is a Garnishment?
A garnishment is the result of a court action, where the judge issues legal paperwork ordering your employer to turn over a portion of each of your pay slips to the creditor you owe money to. This action continues until the debt is paid in full. Your employer must deduct the money from each pay and send it to the creditor. There are two steps that a creditor must follow before they can take your wages with a garnishment:
- The creditor must properly serve a lawsuit on you (this can be “served” by someone handing you the order)
- The creditor must obtain a judgment from the court (this occurs sometime after the lawsuit is served to you)
Once you are properly served, you usually have 21 days in which you can reply in writing to the court defending your actions (can defend the lawsuit which means that the creditor can only get a judgment by reaching a settlement with you or by winning a judgment at a court hearing. If you do not defend the lawsuit and do not respond to it in writing, the creditor can obtain a judgment very easily. This is called a “default judgment.” When this happens, a garnishment on your paycheck is almost certain. And once your payroll department receives the default judgement order they must comply with it.
It’s important to be aware that the CRA (the Canada Revenue Agency) does not have to follow these legal steps to garnish your wages for any taxes owing to them. Once CRA has assessed that you as a taxpayer owe them money, they can simply send their garnishment order directly to your employer (this is known as a “Requirement to Pay”).
What is a Wage Assignment?
A wage assignment is an agreement that is made with a creditor (signed by you) which allows your wages to be taken if you don’t pay the loan. Wage assignments are common with payday loans and credit union loans. A company with a wage assignment can simply send a copy of what you signed, directly to your employer, who then takes money off your paycheck. Wage assignments are not regularly used but they do occur in some circumstances. Be careful what you agree to when you take out a loan – you may be accidentally authorizing the payday loan firm to seize funds without having to go to court to get them, right from your employer!
How to Stop a Garnishment or Wage Assignment
If your wages are being seized by a garnishment or a wage assignment and you cannot afford to pay the debts owing, you may have some options to try to stop the process, including:
1. Set Aside the Judgment
A lawyer’s services can be engaged, and that lawyer can let you know if the garnishment or judgment was obtained improperly. A lawyer may also give you advice on whether it is possible to ask the court to set aside the judgment, stop the garnishment, and/or allow you to defend the lawsuit.
2. Negotiate with the Creditor
Most creditors with a judgment (which usually has the additional court fees the creditor had to pay tacked on to it) are not willing to remove the garnishment until the debt is paid in full. However, you can ask the creditor if they are willing to withdraw the garnishment and work with you to come up with an affordable payment plan to pay back the debt. You should always keep a paper trail of any deals made. If the garnishment is for a tax debt, you may wish to ask a tax professional if it is possible for them to negotiate with CRA on your behalf to stop a Requirement to Pay, waive penalties and interest, and/or come up with a more affordable payment plan.
3. Cancel the Wage Assignment (Ontario)
Since wage assignments are not enforceable in Ontario under the Wages Act (except for credit unions), it may be possible to send a letter to your employer and the creditor requesting that they cancel/void the wage assignment. Your employer will likely stop taking money from your wages once a wage assignment is stopped. Remember that the debt still needs to be paid, otherwise the creditor has the right to bring a lawsuit against you if it’s not paid or settled to their satisfaction.
4. Bankruptcy or Consumer Proposal
Filing for bankruptcy or a consumer proposal legally stops a garnishment, a wage assignment and a CRA Requirement to Pay order. Once a bankruptcy or consumer proposal is filed, the Licensed Trustee sends a legal “hold” document called a Stay of Proceedings to the creditor and to your employer to cease seizure of your pay. This means that by law, the garnishment or wage assignment must stop, including Requirements to Pay by CRA.
Most creditors, including CRA, are open to settling the debts in a consumer proposal for less than the full amount. If any debts are owing like credit cards, loans or income taxes, it is often best to speak with one of our licensed insolvency trustees to determine all the options available to you, including your legal right to file a consumer proposal or a bankruptcy to resolve your debt pressures. Click on the FREE CONSULTATION button, below, or give us a call today. We are here to listen – and to help you!