One of the most powerful collection tools that a creditor has is the ability to seize a person’s wages using a garnishment or wage assignment. Most people want to repay their debts and would happily do so if they could. Therefore, as much as these collection tools may be legal and proper, they make people feel powerless and humiliated as their already troubled financial situation is thrown into a tailspin.
These feelings of stress and helplessness may be reduced by understanding these collection tools, and knowing how to stop them.
What is a Garnishment?
A garnishment is a legal document that is sent to a person’s employer to seize their wages. There are two legal steps that a creditor must follow before it can seize wages with a garnishment. First, the creditor must properly serve a lawsuit on the person. Second, the creditor must obtain a judgment from the court.
There are a number of ways that a creditor can obtain a judgment from the court once it has served a lawsuit. If the person does not defend the lawsuit, then the creditor can easily obtain a judgment over the counter at the court office. This is called a “default judgment.” If the person defends the lawsuit, then the creditor can only obtain a judgment by either reaching a settlement with the person, or by winning a judgment at a court hearing.
If the creditor obtains a default judgment because the person did not defend the lawsuit, then the creditor is not required to give any further notice of its collection activities. That is why garnishments often come as a surprise. They are especially surprising when the court gives special permission to the creditor to use a substituted form of service for the lawsuit because the creditor could not locate the person to personally serve them (e.g. leaving the lawsuit with a relative or posting it on a front door).
The Canada Revenue Agency (“CRA”) is not required to follow these legal steps to garnish a person’s wages for tax arrears. Once CRA has assessed the tax arrears, CRA may simply send its garnishment, called a Requirement to Pay, to the person’s employer without any further legal steps or further notice.
What is a Wage Assignment?
A wage assignment is an agreement signed by a person that allows a creditor to seize their wages if they default on the loan. Wage assignments are common with payday loans and credit union loans. Unlike a garnishment, a creditor with a wage assignment does not need to serve a lawsuit or obtain a judgment in order to seize wages. If the person defaults on the loan, the creditor simply sends the wage assignment to the employer, who then takes money out of the person’s wages.
How to Stop a Garnishment or Wage Assignment
If your wages are being seized by garnishment and you cannot afford to pay the judgment, you may have a number of options to try to stop the garnishment, including:
Set Aside the Judgment
A lawyer may advise you on whether or not the garnishment or underlying judgment was obtained improperly, and whether it may be possible to ask the court to set aside the judgment, stop the garnishment, and allow you to defend the lawsuit.
Negotiate with the Creditor
Most creditors with a judgment are not willing to withdraw the garnishment until the debt is paid in full. However, you or your lawyer may ask the creditor if it is willing to withdraw the garnishment and enter into a more affordable payment arrangement for the full amount; or if the creditor is even willing to settle for less than the full amount in full satisfaction of the judgment. This settlement option is more likely to succeed if you have access to a lump sum of money to offer, and the settlement agreement should be well documented. If the garnishment is for a tax debt, you may wish to consult with a tax professional about whether or not it may negotiate with CRA on your behalf to stop a Requirement to Pay, waive penalties and interest, and enter into a more affordable payment arrangement.
Bankruptcy or Consumer Proposal
Filing for bankruptcy or filing a consumer proposal legally stops a garnishment and Requirement to Pay. Once a bankruptcy or consumer proposal is filed, the trustee sends a stay of proceedings to the creditor and the employer. By law, the garnishment must stop, even Requirements to Pay by CRA. Most creditors, including CRA, are open to settling the debts in a consumer proposal for a fraction of the full amount, and even tax debts may be discharged in a consumer proposal or bankruptcy. If you have consumer debts, business debts, or tax debts, you may wish to consult with a licensed insolvency trustee to discuss all your options, including proposal and bankruptcy.
If your wages are being seized by a wage assignment and you cannot afford to pay the debt, then you may have a number of options to try to stop the wage assignment, including:
Cancel the Wage Assignment (Ontario)
Since wage assignments may be unenforceable in Ontario under the Wages Act, with the exemption of those given to credit unions, it may be possible to send a letter to your employer and the creditor explaining that you wish to revoke the wage assignment. In this case, your employer will likely stop taking money from your wages. This type of letter may not work if the creditor is a credit union. Keep in mind that, while the wage assignment may be stopped, you will still need to deal with the underlying debt, and the creditor may still bring a lawsuit if the debt is not paid or settled.
Negotiate with the Creditor
You or your lawyer may ask the creditor if it is willing to enter into a more affordable payment arrangement for the full amount; or if the creditor is willing to settle for less than the full amount in full satisfaction of the debt. This settlement option is more likely to succeed if you have access to a lump sum of money to offer, and the settlement agreement should be well documented.