A man opening an empty wallet. Stock photo by Getty Images.
If you owe money, your creditor can sue you to collect the debt. This is why it is best to make a payment arrangement with your creditor as early as you can and stick to it to prevent court action.
Creditors often sue when there is no likelihood of collecting the debt without court intervention. The debt amount should generally be worth the legal cost and hassle of suing someone in court.
Creditors must obtain a court order to have your wages garnished. There are only two situations when your wages may be garnished without a court order:
- If you assigned your wages to a credit union; or
- If you owe the Canada Revenue Agency in back taxes and it wants to garnish your wages to cover the arrears.
Let’s say your creditor has sued you and has obtained a valid court order for wage garnishment. Your employer will receive a notice of garnishment, which lists the debt amount, and the name of the creditor among others things. The court order is binding on your employer. This means your employer is required by law to pay a portion of your wages — the court order specifies exactly how much — directly to your creditor or to the court. This does not mean that your employer can fire or demote you because they have received a garnishment order for your wages.
See: Garnishment of employee’s wages
Every province and territory has laws that determine the maximum amount that can be garnished from a debtor’s wages. In Ontario, the maximum amount is 50 per cent of your gross monthly wages. For example, if you made $1,000 in gross wages in one month, up to $500 can be garnished, but not more.
The 50 per cent limit applies to your regular wages. However, certain types of income, such as social assistance and employment insurance payments, are exceptions. They cannot be garnished at any percentage.
In order to stop the wage garnishment, you are required to come up with a debt management solution that is backed up by courts. In Ontario, as in all other provinces, you have some options to stop wage garnishments:
- You may pay the debt;
- You may file for bankruptcy; or
- You may file for an alternative to bankruptcy, such as a consumer proposal.
See: Personal bankruptcy, what to know
A consumer proposal is a legal agreement under the Bankruptcy and Insolvency Act between you and your creditor. It allows you to repay only a part of what you owe based on your income and assets. It is facilitated through a bankruptcy trustee. If approved, a consumer proposal offers you protection from debt collectors and immediately stops wage garnishments. The only catch is your creditors must agree to your proposal. Most creditors do because they don’t want you to go bankrupt and not pay them anything.
See: Alternatives to personal bankruptcy
A good strategy to fight wage garnishments is to consult with a debt management expert. Some offer advice free of charge.