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Key Takeaways
Wage garnishment is when a creditor legally deducts a percentage of a debtor's wages to repay debts owed to a creditor. Generally, all creditors will first need a wage garnishment order before wages can be garnished, except the Canada Revenue Agency, which does not require one, but wage Garnishments can be immediately stopped by filing a consumer proposal or bankruptcy with a Licensed Insolvency Trustee.
What is a Wage Garnishment
Wage garnishment is a legal process for creditors to legally deduct a percentage of your wages to repay the debts owed to the creditor. It is a collection strategy by creditors to collect money if an individual refuses to pay their debts. It involves creditors obtaining a court order to deduct up to 20% of a debtor's gross pay towards repayment. For example, if you fail to pay your credit cards or taxes, the credit card company or the Canada Revenue Agency could garnish your wages.
Who can Garnish Wages in Ontario?
Any creditor owed money can apply for a wage garnishment order to have a portion of a debtor's pay deducted by their employer. This includes credit card companies, Canada Revenue Agency, payday loans, bank loans, child support, collection company and other creditors owed money.
How Does Wage Garnishment Work in Ontario?
1) Debt Collection
If a debtor does not pay a creditor, then they may start a collection process which includes letters, emails and phone calls for the debtor to repay the amounts owed. The creditor may also send the debt to a to collect the debt.
2) Statement of Claim
If the collection strategy is unsuccessful, creditors may take more aggressive actions and start legal proceedings by hiring a lawyer to sue the debtor by filing a Statement of Claim for the debts owed. The Statement of Claim will be filed with a local court and sent to the debtor to respond.
3) Statement of Defense
The defendant/debtor would have 21 days from the date the claim was mailed to either file a Statement of Defense to dispute the debt or contact the creditor if errors were identified. If the debtor does not respond, the court will assume they agree with the amount claimed, and the creditor will be granted a wage garnishment order.
4) Wage Garnishment Order
The creditor may send the wage garnishment order to the debtor's employer, and the employer becomes obligated to withhold a certain amount of the debtor's gross employment income. The deducted amount is paid directly to the creditor until the debts are paid in full, or the debtor takes action to stop the wage garnishment through legal proceedings such as filing a consumer proposal or bankruptcy.
Do Creditors Need a Court Order to Garnish Wages?
Some creditors do not need a court order to start garnishing wages.
For example, Canada Revenue Agency can garnish wages for tax debt or take money from the debtor's bank account without first suing them. They could also place liens on any properties owned by the debtors, such as a house.
Also, a bank, credit union, or payday loan company could garnish wages if the debtor previously agreed to an assignment of your wages for a loan received when they signed their loan agreement.
How Much of My Income Can Go Towards a Wage Garnishment Order?
Under the Ontario Wages Act, it specifies that the maximum a creditor can garnish is 20% of gross wages and 50% of child support owed. The court will decide the actual amount that will be garnished, which could be based on the debtor's financial circumstances and other relevant considerations.
Once an employer receives a wage garnishment notice, they are legally obligated to deduct up to a maximum of 20% of the debtor's paycheque to repay the creditor. The employer will then remit this amount directly to the creditor.
Are there any Exemptions?
There are exemptions where a creditor can't garnish income. The following are exempt from wage garnishment orders:
Basic social financial assistance (such as Ontario Works)
Employment insurance
Canada Pension Plan, Old Age Security, Guaranteed Income Supplement
Child support payments received
Can I Be Garnished if I'm Self-Employed?
Yes, creditors can garnish an individual's wages even if they are self-employed. However, this is less straightforward than if the garnishee was an employee. The creditor who received a garnishment order could notify the debtor's clients and request that a portion of the invoice be remitted directly to the creditor.
This is more difficult because the creditor first needs a list of clients to send the notice. Also, money earned being self-employed isn't classified as wages, so up to 100% of earnings could be garnished.
Canada Revenue Agency uses this collection strategy for sole proprietors if they can obtain a list of creditors who owe money to the garnishee.
How to Stop Wage Garnishment in Ontario?
1) Repay Debts in Full
You could pay the creditor in full if you have money available or take out a loan to pay off the debt owed to the creditor. This may be a short-term solution. By obtaining a new debt to pay off one creditor, you now have a new loan to repay, which may be at a higher interest rate.
2) Negotiate with Creditors
You could contact the creditors directly to work out another payment arrangement to stop the garnishment. The creditor may be less likely to negotiate as they spent time and money to get the wage garnishment order, and they are currently being repaid from your pay cheques.
3) Consumer Proposal or Bankruptcy
Lastly, you can seek relief and stop the wage garnishment order by filing a consumer proposal or bankruptcy with a Licensed Insolvency Trustee. These options will put a stay/freeze on any charges against you, such as wage garnishment, so they are no longer effective against you.
Once the consumer proposal or bankruptcy is signed and filed, the Trustee will send a copy of your consumer proposal or bankruptcy documents to your employer and advise them to stop garnishing your wages immediately. The employer will then be obligated to stop garnishing your wages in the future. The creditor will keep all prior amounts paid by the garnishment.
You will now receive your full pay again. The consumer proposal or bankruptcy may have also included other outstanding debts such as credit cards, lines of credit, and other consumer collection accounts.
Conclusion
If you have any outstanding debt you have not paid, you may be at risk for a wage garnishment order against you. However, usually, there will be warning signs such as debt collectors or lawyer's letters demanding repayment of debts. Once you reach this point, you should start reviewing your options for this debt and all other obligations you may have. However, if you take no legal action now, you may have a wage garnishment order issued against you.
If your wages are currently being garnished, or you are struggling with your debts and seeking debt relief, contact Litvack Group for a free consultation to review your financial situation and help reduce your financial stress.