Navigating the Complexities of Wage Garnishment: Steps to Take
Facing wage garnishment can be a daunting experience, causing significant financial strain. This guide will explore wage garnishment, its implications, and what steps you can take to cope with this situation.
Understanding Wage Garnishment
Wage garnishment is a legal mechanism used by creditors to recover their outstanding debts. This procedure involves the court directing your employer to withhold a particular portion of your wages, which is then paid directly to the creditor.
Who Can Initiate Wage Garnishment?
Wage garnishment can be initiated by any entity to whom you owe money. This includes credit card companies, collection agencies, payday loan providers, and government agencies. The Canada Revenue Agency (CRA), for example, can garnish your wages if you owe taxes, have collected excess employment insurance, or have defaulted on child support or student loan payments.
How Does the Garnishment Process Work?
Wage garnishment is usually a last resort for creditors. They typically resort to this measure when other methods, such as phone calls and letters, have failed to yield results.
For a creditor to garnish your wages, they need to secure two court orders. The first, known as a “payment order,” verifies that you owe the creditor money. The second, a “garnishing order,” instructs your employer to redirect a portion of your wages to the court, which then passes it on to the creditor.
In certain cases, a creditor may request a payment hearing. This is an opportunity for both parties to present their case before the court, which then decides on the terms of payment.
What is Protected from Wage Garnishment?
While creditors can garnish wages, certain types of income are exempt. These include employment insurance, social assistance, and pensions. However, once these funds are deposited into a bank account, creditors can freeze the account and garnish the funds.
Also, certain “non-salary” items on your paycheque are unaffected by garnishment. These include:
- Contributions to the Canada Pension Plan and Quebec Pension Plan.
- Employment Insurance deductions.
- Income Tax deductions.
- Union membership dues.
- Wage Garnishment and Self-Employment.
Being self-employed does not protect you from wage garnishment. In such cases, the court may direct your clients to pay a portion of what they owe you directly to the creditor. While this could potentially lead to 100% of your self-employment income being garnished, it is more common for only a part of your earnings to be garnished.
Wage Garnishment and Unemployment
If you’re unemployed, you don’t have wages that can be garnished. However, creditors can garnish your termination or severance package from your previous employer.
How Much Can Be Garnished?
The percentage of your income that can be garnished varies between 20% and 50%, depending on the province or territory you live in. A Licensed Insolvency Trustee (LIT) can provide information specific to your location.
The Role of Employers in Wage Garnishment
Employers are legally required to comply with wage garnishment orders. Moreover, they cannot penalize, terminate, or suspend an employee solely because their wages are being garnished.
How to Halt Wage Garnishments
Seeking professional help is crucial if you are facing wage garnishment. A Licensed Insolvency Trustee can guide you through your options, which might include:
Establishing Repayment Plans with Creditors
A Debt Management Program (DMP) consolidates all eligible debts into one, simplifying the process of tracking and repaying debts. While a DMP can affect your credit reports for two to six years, it can also help you learn to better manage your finances.
Filing a Consumer Proposal
If recommended by your LIT, you can present a proposal to your creditors. This proposal could offer to repay a portion of your outstanding debt or request additional time to repay it. In this scenario, your payments are made to the LIT, who then pays the creditors.
Declaring Bankruptcy
Bankruptcy is a legal process that can eliminate most of your unpaid debts. In this case, the LIT takes control of all your assets and liabilities and manages interactions with creditors. While filing for bankruptcy requires you to surrender certain assets and attend credit counselling sessions, it can provide a fresh start.
Conclusion
While a consumer proposal and bankruptcy can provide relief, they should be considered as last resorts due to their impact on your credit score. The best course of action is to repay your debts fully and promptly. If this isn’t feasible, seeking professional help can provide a path towards a more secure financial future. Consult with a professional today and inquire about a free consultation.
