Wage garnishments or seizures are an extreme collection method that creditors may use to recover money owed to them. Facing a wage garnishment can be incredibly stressful and overwhelming, and many people don’t know what their rights and remedies are in the situation.
As Licensed Insolvency Trustees we are contacted regularly by people who have questions about wage garnishment. Read on for an overview of consumer wage garnishments in British Columbia, some common scenarios when they may occur, and options you may have to stop a wage garnishment.
What is a Wage Garnishment?
Sometimes referred to as a garnishee, wage assignment or attachment, a wage garnishment is a legal court order that means a creditor (someone you owe money to) may collect a debt from you by seizing part of your income.
Who Can Start a Wage Garnishment?
Wage garnishments may be undertaken by any creditor provided they follow the necessary processes (which will vary depending on who the creditor is) including:
- An individual you owe money to;
- Common consumer creditors such as banks, credit card companies and their collection agencies;
- Canada Revenue Agency (CRA) collects on money owed under several government programs, some common causes for wage garnishments by CRA are due to money owing for:
- Taxpayer Debt (This may include balances owing for outstanding income taxes, business GST or payroll deductions – plus interest and penalties.)
- Canada Student Loans in Default
- EI Overpayments and Penalties
- Family Maintenance Enforcement Program (FMEP);
- If you are behind in your maintenance payments, a Notice of Attachment may be issued by FMEP. Attachments by FMEP may serve to collect income from many sources including: wages, salaries and commissions; pensions, disability and WorkSafeBC benefits.
- FMEP attachments are generally in place for five years (or until the maintenance order or agreement is no longer enrolled with FMEP); if arrears are still owed after five years the attachment will be automatically renewed.
How Does a Creditor Start a Wage Garnishment?
Most creditors will need to apply to court in order to start a wage garnishment, which takes time and doesn’t generally happen overnight – they cannot simply start taking money from your wages (or other income), although there are some exceptions to this.
- Before a creditor can garnish your wages, they need to get two court orders. The first is a court judgment against you called a payment order which confirms that you owe the creditor the debt.
- Once the creditor has this judgment against you, they can then seek a garnishing order, which will require a third party who owes you money (ie. your employer) to make payments to the creditor. Creditors garnishing your wages via court order will need to repeat this step at every pay period.
- Typically, when a wage garnishee starts your employer’s payroll department will receive the garnishing order from the creditor directing them to withhold funds from your paycheque and remit (send) the money to the court. For many people, this is when they learn that a wage garnishment is starting, giving them little time to react and prepare for a reduced income.
- The garnishing creditor will then apply to the court to receive the money being held there from your pay.
You can still have your income garnished if you are self-employed. Instead of delivering notice of a wage garnishment to your employer, the creditor may instead direct the notice to a self-employed individual’s client.
After receiving a judgment against you but before starting a wage garnishment, a creditor may apply for a payment hearing. A payment hearing allows the court to hear the sides of both parties and make an order detailing payment terms. The creditor or the person who owes the debt can request a payment hearing.
If you owe money under a judgment and were served with a summons (or ordered by a judge) to attend a payment hearing, you can be arrested if you do not attend.
Exceptions to Court Order Requirements for Wage Garnishments
Unlike most other creditors, the government has powerful collection methods and can issue a “requirement to pay” under several Canadian statutes. A requirement to pay can be sent to a third party, for example, a client of a self-employed person, and requires that the client must send all funds owing for work done directly to CRA, thereby cutting off payments that would normally be go to the individual performing the work. Canada Revenue Agency does not need to obtain a court order to start a wage garnishment and may send a requirement to pay notice directly to your employer or client if you are self-employed. Money withheld by your employer for the CRA will not be held in court, CRA will be paid directly by your employer.
A requirement to pay issued by CRA may be applied to many different types of money someone could pay you for earnings, including wages, salaries, bonuses; payment for contractor or subcontractor services.
How Much of my Income is a Creditor Allowed to Take?
The amount of employment income a garnishing creditor is allowed to take from you will vary by province. In most cases in BC 30% of your net (after payroll deductions) income may be garnished.
There are important exceptions to this however, and a creditor may apply to have the amount of the seizure increased:
- Provincial limits on how much income may be garnished do not apply to Canada Revenue Agency, nor will these same limits apply to Family Maintenance Enforcement Program;
- 100% of income earned through self-employment (such as sub-contractor wages) may be garnished.
Government income such as CPP, OAS, GIS, Employment Insurance and Social Assistance benefits are considered exempt and cannot be garnished, except where the debt is owed to CRA or FMEP.
Can a Creditor Add to the Amount I Have to Pay?
Yes – creditors may be able to add their fees and costs to the amount of money you must pay them. When a garnishing order is filed at court, the registrar may allow the garnishing creditor to recover additional money for costs such as: court filing fees, serving orders and swearing affidavits.
Other Types of Garnishments or Assignments
In addition to wage garnishments, creditors may also be able to collect on debts by seizing money from the following sources including (but not limited to):
- Bank accounts;
- Income tax refunds;
- GST/HST credits;
- Investment proceeds;
- Rent or lease payments;
- Insurance claim proceeds.
Bank Account Seizures
When a creditor has a garnishing order, wages along with bank accounts are often garnished. Unlike the limits placed on how much income can be garnished, there is no exemption for money in a bank account and income that may have been exempt will no longer be protected once it has been deposited into your bank account.
To get a garnishing order for a bank account, the creditor will need a judgment against you proving the debt – with that the creditor can fill out and file a garnishing order from the small claims court registry. A registrar will then sign the order and provide the creditor copies they need to serve your bank.
Because no court hearing is required to garnish money from a bank account, you may not know it is happening.
A creditor with a garnishing order may simply provide copies of the order to your bank and direct them to pay the money owing from your bank account to the court, from there the creditor can apply to get the money paid to them.
It’s important to know that a creditor may not garnish money from a joint bank account unless they have a judgment against both account holders, except for CRA.
What is the Right of Offset?
The right of offset is the right of a bank of other financial institution to recover money owed to them for an outstanding debt by taking money you have on deposit with them or an affiliated bank to pay your debt. The right of offset is commonly included in credit and account agreements and may be enforced without notice to you, it may also be used on joint accounts.
If your bank uses its right of offset, they may withdraw all the money in your account if the debt is more than what is available. This can cause NSF charges to accumulate if pre-authorized payments or other withdrawals continue to be put through the account.
What is a Bank Account Freeze?
Essentially your account is stopped from functioning: the funds are still in the account, but you will not be able to use them for day-to-day transactions (including pre-authorized payments like car insurance or other automatic bill payments).
A bank account freeze is often used by CRA, sometimes to prompt a person who is behind on filing income tax returns (but may not necessarily have an outstanding balance owing) to get their outstanding returns done.
How Can I Stop a Wage Garnishment?
In the case of a court ordered garnishment, you can consider:
- Applying to court to have the garnishing order set aside (released) if you can prove to the court that the order is causing you serious financial hardship or isn’t necessary to ensure payment of the debt, or asking the registrar to increase the amount of your wages that are exempt from seizure (up to 90% may be exempted).
- Working out a payment schedule with the creditor that could result in the garnishment being removed.
If the above is unsuccessful or you are facing a CRA garnishment, short of leaving your job or letting the garnishment run its course, stopping a wage garnishment generally has two solutions:
- Make a Consumer Proposal: Filing a Consumer Proposal will trigger a “stay of proceedings” which means you have protection from creditors and they must immediately stop garnishing your wages. A Consumer Proposal is a different legal debt solution than bankruptcy and will serve to consolidate and reduce virtually all your debts into one settlement.
- File Bankruptcy: Declaring bankruptcy is another alternative that will create a stay of proceedings, halting wage garnishment. The process is generally private, straight-forward and lasts only 9 months for most people in Canada.
A Licensed Insolvency Trustee can help you assess your situation and put an immediate stop to wage garnishments and bank account seizures by most creditors, including those by CRA.
Book your confidential free debt consultation with Sands & Associates today – we’re here to help you.