Wage garnishment is a legal mechanism which enables creditors to deduct money directly from a debtor’s salary to repay an outstanding debt. However, declaring bankruptcy can provide a shield against such measures. Bankruptcy triggers an automatic stay, a legal provision that halts wage garnishment and other collection actions by creditors.
Putting Wage Garnishment on Hold: The Role of Bankruptcy
When you declare bankruptcy, the process of wage garnishment can be interrupted. This relief is not instant, though, and requires the involvement of a bankruptcy trustee who needs to be furnished with specific information:
- Payroll contact information of your employer
- Date of your next payday
- Details about the creditor garnishing your wages
- Identity of the court processing the Order
- Details of your bank account (if money has been withdrawn)
This information equips the trustee to enforce the stay and compel your employer to cease the garnishment.
What Kinds of Garnishments Can Be Halted?
While declaring bankruptcy or filing a consumer proposal can impede most wage garnishments, exceptions do exist. For example, wage garnishments for child or spousal support cannot be stopped by bankruptcy or a consumer proposal.
However, both these legal routes can halt garnishments instigated by the Canada Revenue Agency (CRA). Instead of a garnishment Order, you’d need to provide a copy of the Demand to pay issued by CRA.
The automatic stay is applicable not only to wage garnishments but also to other garnishment procedures. For instance, if your bank account is frozen, filing a consumer proposal or declaring bankruptcy can resolve the issue.
The Stay of Proceedings: How It Works
Once you’ve filed for bankruptcy or a consumer proposal, further deductions from your pay or bank account cannot be made without an explicit Order from the Bankruptcy Court. These Orders are seldom granted.
Another feature of the stay is that any funds deducted from your pay or account after your filing, but not yet transferred to your creditor, must be forwarded to your trustee. Similarly, if the court has received money from your employer but hasn’t released it to the creditor garnishing your wages, the court must send the money to your trustee.
In the case of a consumer proposal, you can request your trustee to return this money to you. However, if you’ve declared bankruptcy, the money is held by your trustee to be distributed among all your creditors.
In Conclusion
If your wages are being garnished by a creditor, declaring bankruptcy or filing a consumer proposal can put an end to it. The sooner you file, the sooner the garnishment can be stopped. You can also recover any amounts deducted but not yet distributed to your creditor. If you’re facing wage garnishment, it’s advisable to consult a bankruptcy trustee promptly.
