If you have defaulted on debt payments, then your creditors have the legal right to order payments toward their dues through an order issued by a court of law in Canada.
Directed by the court order, your employer will direct a specified sum of your income, usually a maximum of 50% of the sum, to your creditor(s).
This process is called Wage Garnishment.
A creditor can obtain a Wage Garnishment order against your bank account too.
Your bank will then be forced to direct the required sum of money to your creditor(s) from your account.
The Canadian law however presents options for the debtor to stop a Wage Garnishment.
Given here are some legal options to stop Wage Garnishment and more details on the process.
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What Happens during a Wage Garnishment Process?
Under Canadian law, a Statement of Claim filed by a creditor, is the first step toward initiating a Wage Garnishment process. This process gives you, the debtor, a period of 21 days from the day of mailing the Claim, to respond to the creditor. You can notify the creditor of an error in the Claim within the allotted 21 days. In case, you want to dispute the Claim, you can do so too, within 21 days, by filing a Statement of Defense.
Any type of creditor, including the Canadian Revenue Agency, credit card companies, and payday lending groups, are all legally eligible to have a Wage Garnishment issued to defaulting debtors.
In some cases, it is not even necessary for creditors to initiate Wage Garnishment.
The Canadian Revenue Agency, for example, can instruct your bank to direct funds toward its payment if you have defaulted. The Agency can do so without filing a Statement of Claim.
In cases where you have agreed to, and signed for, an initiation of Wage Garnishment in case of a default, the creditor can initiate the process without suing you first.
Ways to Stop Wage Garnishment
When faced with Wage Garnishment, it is important to act fast to prevent further wage cut. A mere promise of a next payment to your creditor is not enough to stop Wage Garnishment.
This is because you have already broken the trust of your creditor by defaulting on payments, which is going to make the creditor wary and distrustful of your future promises. In fact, creditors initiate Wage Garnishment only against debtors that they believe would only continue defaulting, or those with a history of default.
It is therefor prudent to meet your creditor and reach an agreement as soon as Wage Garnishment occurs. If the creditor is unwilling, then you will have to explore Consumer Proposal or Personal Bankruptcy declaration as possible ways to stop Wage Garnishment.
Filing a Consumer Proposal to Stop Wage Garnishment
A Consumer Proposal is a legal debt settlement solution, and is the only debt solution that is formally recognized by the Government of Canada. A Licensed Insolvency Trustee (LIT) is the authorized person to administer a Consumer Proposal.
Key points related to the filing and implementation of a Consumer Proposal:
- Once your LIT files a Consumer Proposal with the OSB – Office of the Superintendent of Bankruptcy – any direct payments to creditors to whom you owe unsecured debts (debts without a collateral), are stopped.
Filing a Consumer Proposal also puts a stop to creditor actions such as lawsuit filing and wage collection (if the creditor is already doing so).
- The Proposal usually includes an offer that promises payment of a certain percentage of the total money payable to the creditor(s), or a request to extend the time for total debt payment, or both. The term limit of a Consumer Proposal is 5 years, meaning the debt settlement must happen within this time.
- The LIT works with you throughout the Consumer Proposal process, from helping you explore your debt settlement options and arriving at the best solution to developing the Proposal, and ensuring that Proposal terms are met. All your debt settlement payments are made through the LIT.
- The LIT presents your Consumer Proposal to your creditors for their review and acceptance. The Proposal will carry information on your financial situation and the difficulties preventing you from making regular payments.
- Creditors get a 45-day time period to agree to the Proposal or reject it.
- Creditors have the right to request for a meeting provided they are owed 25% of the total proven debt claims. Such a meeting must be held within 21 days from the date on which the creditors were notified of the Proposal. Creditors can accept or reject the Proposal during the meeting.
- In case no such meeting has been requested within 45 days, the Proposal automatically stands accepted.
- If accepted, you need to pay your creditors either a lump sum amount, or make periodic payments as agreed upon, to the LIT for distribution to creditors.
- The Proposal can be sent to a court of law for review even after creditor acceptance. Such request can be made by the OSB or other stakeholders. Such a request needs to be forwarded to the LIT within 15 days from initial acceptance. The LIT will then apply for a court review of the Proposal.
- If you remain faithful to the Proposal, then you will be declared free of debts listed in the Proposal.
- If you fail to make the payments agreed upon, frequently, then the Proposal stands null. This means, your creditors can take any action to claim their dues (there are certain exceptions though).
Declaring Bankruptcy to Stop Wage Garnishment
Bankruptcy is the option your LIT is most likely to recommend after you have exhausted all options to stop wage garnishment. Bankruptcy is a legal debt relief process in which the debtor releases assets that are not exempt under Federal, or provincial/ territorial, laws, to creditors, to be free of payable debts.
Some key facts related to Bankruptcy process:
- Your LIT files your Bankruptcy declaration with the OSB after which you will officially be recognized as bankrupt.
- Once you have been declared bankrupt, all your communications with creditors will be handled by your LIT.
- Any wage garnishment will be stopped with immediate effect. Your LIT will also ask you to stop any payments you might be paying your unsecured creditors till that point. Any lawsuits initiated by your creditors against you will also be stopped.
- Once you declare bankruptcy, your LIT will inform all your creditors about the declaration.
- Your LIT will sell all your assets. Money received from sales is held in trust by the LIT for subsequent distribution to your creditors. You can retain assets that have been exempted from sale for bankruptcy under Federal, provincial and territorial laws.
- A meeting of creditors may happen, upon request or requirement. Your creditors can put forth their opinions regarding the declaration, and request for specific actions from the LIT. An arrangement to appoint supervisors (a maximum of 5 members is allowed) to manage your assets may also be take place.
- Once you file for bankruptcy, you may be examined by an OSB representative, under oath. This examination aims to know if your decision to declare bankruptcy has genuine grounds. You may be asked to explain your conduct, reasons that led to your bankruptcy decision, and settlement details of your assets, during the examination.
- You may be directed to make additional payments, called “Surplus Income Payments”, to your LIT, for payment to your creditors.
- Discharge from bankruptcy – complete legal relief from payment of debts that existed at the time of filing for bankruptcy – depends on several factors including discharge exceptions as defined by the law, detection of fraudulent actions, and frequency of your bankruptcy.
A first bankruptcy, for example, can qualify for a discharge after 9 months. Your LIT can guide you in this regard.
It is possible to stop wage garnishment if you have a LIT that takes swift and timely action on your behalf. If you are looking for debt relief, approaching a LIT should be your first step. Find out an active LIT near you with OSB’s search tool.