What you need to know about a CRA Garnishment

A CRA garnishment can be put in place without a court order. The process begins with a Requirement to Pay notice issued by the Canada Revenue Agency to a third party, such as your employer. The recipient, your employer, is required to deduct or withhold funds from your pay and send the money directly to the CRA.

There are many types of requirements to pay, including:

• A garnishment of salary, wages, commissions, bonuses, expenses etc. owed to an employee
• A garnish of payments due to a contractor or subcontractor for goods and services (including time and labour)
• Redirection of accounts receivable
• Amounts that would otherwise come to you in the form of rent, lease payments, interest income, loan repayments, proceeds from the sale of assets
• CRA can also freeze a bank account.

Will the CRA notify me of a wage garnishment?

A copy of the notice will also be mailed to you, the tax debtor. Prior to that you would have received notices of assessment and collection letters from the CRA. However, the CRA can commence garnishment of your wages without any further formal notice to you if you don’t pay or work with them to make payment arrangements.

Once your employer receives a CRA payroll garnishment notice, they are required by law to comply immediately. Your employer does not need to notify you that they received the order.

Because many people who are experiencing debt problems, whether with the CRA or any creditor, often don’t open their mail, it’s not unusual for them not to be aware their wages have been garnisheed until they go to deposit their cheque or withdraw funds from their bank account.

How much of my wages can CRA garnish?

CRA can garnish up to 50% of your wages if you are an employee, and up to 100% of your income if you are a contract worker. If you are self-employed and bill clients, CRA can have 100% of your accounts receivable redirected in settlement of past tax debts.

What types taxes can be collected via a CRA garnishment?

Laws allow the CRA to issue a requirement to pay or garnishment order for several types of tax debt and government overpayments including:

• Income tax debt
• GST/HST/PST debts
• Withholding taxes
• Customs duties and taxes
• Employment insurance (EI) and Canada Pension (CPP) overpayments

Can you stop a CRA wage garnishment?

If you cannot afford to pay your outstanding taxes, you can stop a CRA garnishment although it takes another piece of federal legislation, the Bankruptcy & Insolvency Act (BIA), to do so.

You have two options to stop a CRA garnishment and eliminate the tax debt:

1. File a consumer proposal
2. File personal bankruptcy

Both options provide a legal stay of proceedings that will stop the garnishment, even one that is currently in process.  Once you file a proceeding under the BIA, your Licensed Insolvency Trustee will send a copy of the filing to your employer who will now have the legal notification they need to stop withholding funds from your paycheque.

If you file a proposal, you will need to make an acceptable tax settlement offer to the CRA.  If you file bankruptcy, CRA will file a claim and your tax debts will be eliminated when you receive your discharge.

The process to stop the CRA from garnishing your wages is simple:

1. Contact a Licensed Insolvency Trustee for a consultation. Tell us you have a garnishment pending, or already in place.
2. Enquire from your employer who should be contacted to stop the garnishment once your file and get their contact information.
3. Attend a free consultation during which we’ll collect the necessary information to help you decide if you should file bankruptcy or make a proposal to your creditors and collect everything we need to prepare all the paperwork.
4. You sign the bankruptcy or proposal documents and we file these with the government which starts the stay of proceedings. This can often be done the same day or next day if we have all the information we need.
5. We’ll immediately notify your employer that you have filed and advise them to stop the garnishment.

The quicker you act, the sooner we can notify your employer to stop taking money from your pay. If your employer has withdrawn funds from your paycheque, we can sometimes get these funds returned if we can notify the correct person at your place of work before they remit the funds to the Canada Revenue Agency.

If you are dealing with the CRA and don’t feel you can pay your tax debts, contact us today for a free, no-obligation consultation.

The post How to Stop a CRA Wage Garnishment appeared first on Hoyes, Michalos & Associates Inc..

1. What kind of income can my creditors garnish?
2. How much of my income can they garnish?
3. What can be done to stop the garnishment.

Today’s podcast is all about what types of income are subject to seizure through a garnishment order and how much can be garnisheed.

If you are under a garnishment order, you may also want to read or watch our podcast on steps to take if you have a wage garnishment.

What kinds of wages or income can be garnished?

In general, wages in all forms can be garnisheed, but most other forms of income cannot be withheld under a creditors garnishment order, except for certain exceptions for child and spousal support orders, or by the CRA for tax arrears and benefit overpayments.

For garnishment purposes, wages can include any payment you receive from an employer for working, and includes hourly wages, salary, or piecework compensation.

Can severance pay be garnished?

Yes, severance pay or termination pay can be garnisheed as it is considered wages, because it arises as a result of your employment.

Can Ontario Works be garnished?

Under the Ontario Works Act basic financial assistance is not subject to garnishment, attachment, execution, or seizure.  The only exception is support orders under section 20 of the Family Responsibility and Support Arrears Enforcement Act that can be garnisheed.

Can a disability pension be garnished?

The answer depends on whether your disability income is from a company disability plan or government benefit programs like ODSP.

• Long term disability payments provided through a company disability pension are a replacement for lost wages, and are therefore deemed to be wages, and can be garnished.
• Under the Ontario Disability Support Program (ODSP) Act, income support is not subject to garnishment, attachment, execution, or seizure, except for support orders.

Can retirement income be garnished?

Neither the Ontario Pension Benefits Act or the Canada Pension Plan Act make any reference to garnishments.

That means that a typical creditor cannot garnishee your retirement pension or Old Age Security (OAS) including the Guaranteed Income Supplement, the Allowance, and the Allowance for the Survivor.

However,  there are five exceptions or cases where you could lose some or all of your government pension:

1. Pension funds you deposit into a bank account where you owe money. Banks can seize money in your account if you owe them money. This is called the right of ‘set off’.  They can take any amount out of your account, up to the balance owing.
2. Child or Spousal support arrears. The Family Responsibility Office can be granted a garnishment of pension income to recover arrears for child or spouse support and can garnish up to 50% of your pension.
3. Canada Revenue Agency (CRA) has broad garnishment powers. No court order is required for them to garnish your pension. They can simply send a letter to your bank or the Income Security Program office (the government office responsible for CPP and OAS).
4. Income Security Overpayments. If you were overpaid (perhaps on OAS where your income increased), the government can deduct overpayments from future benefits until the entire amount is repaid.
5. Social Assistance Repayments. If you are eligible for OAS you are generally not eligible for Ontario Works or ODSP, but if you are over paid, the overpayment can be clawed back from your pension.

Can my tax refund be garnished?

If you file your tax returns and are owed a refund, the only creditor that can garnish the refund directly is a government agency like the CRA, Family Responsibility Office, Student Loans etc. This is a common occurrence if you have government debts in collections such as student debts, government over-payments, tax debts or support payment arrears. 

Non-government or private lenders do not have the legal ability to garnish your tax refund. They can however apply to the court to freeze your bank account which means if your income tax refund is deposited in your bank account, your creditors may seize those funds once they obtain a judgement order. 

How much wages can be garnished?

Under the Ontario Wages Act, a judgement creditor (like a bank or credit card company) can garnishee up to 20% of your net wages (after statutory deductions for taxes, CPP, and Employment Insurance). A support order for child support or spousal support can garnishee up to 50% of your wages.

Canada Revenue Agency is not bound by the provincial Wages Act, and therefore can theoretically seize up to 100% of your wages, although they typically take 20%, or 50% of your wages in extreme cases.

A judge may increase or decrease the amount of the garnishment.

Read more: Wage Garnishments – Know Your Rights

What about basic income?

In 2017 the Ontario government started a pilot project to test basic income.  The pilot project is currently operating in Hamilton, Brantford and Thunder Bay.   In the pilot project, participants receive a set amount of money each month.  Can this income be garnisheed?  We don’t know.

Other income support programs, like Ontario Works and ODSP, have specific legislation that specifically prohibits income garnishment.  There is no such specific provision in legislation for Basic Income, so it is possible that it could be garnisheed.  We don’t know, and we probably won’t know until either specific legislation is enacted, or there is a court case where the court makes a ruling.  We will continue to monitor this new source of income.

Resources Mentioned in the Show

• Ontario Wages Act
• Ontario Works Act
• Ontario Disability Support Program Act, 1997
• Pension Benefits Act
• Canada Pension Plan Act
• Old Age Security program, Canada
• Old Age Security Act
• David Macdonald, a senior economist with the Canadian Centre for Policy Alternatives
• Basic Income. Is it a silver bullet for poverty?
• 2017 the Ontario government started a pilot project to test basic income. https://www.ontario.ca/page/ontario-basic-income-pilot

TRANSCRIPT Show 168 What Types of Income Can Be Garnisheed?

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Doug H:     One of the most common reasons that people call the Hoyes Michalos 310-PLAN helpline is because either their wages are being garnisheed or a creditor is threatening to garnishee their wages. We’ve done a podcast about what steps to take if you have a wage garnishment, today we’ll give a quick reminder of what you can do if you are faced with a wage garnishment, but we’ll start by talking about what types of income can be garnisheed and how much of your wages can be garnisheed if you receive a garnishment order.

We’ll discuss different forms of income, so if you’re listening today and you’re only interested in one type of income, like wages, and aren’t interested in the other forms of income that can be garnisheed, like pensions, well no problem I’ve got you covered. You can go to the show notes over at hoyes.com/podcast and find the show notes for this show. I’ve created a list of the time stamps for each topic we cover so you can fast forward to the exact topic you want to hear about.

So, to help us talk about all things wash garnishment returning to the show once again, but for the first time this season, is Ted Michalos, my Hoyes Michalos co-founder and business partner and Ted of course like me is a charter accountant and a licensed insolvency trustee. Ted, welcome back.

Ted M:     Thanks Doug.

Doug H:     So, before we begin, let’s address a question that bothers everyone. Is the correct term garnish or garnishee or garnishment?

Ted M:     It’s okay. So, let’s look at some definitions and maybe have a little bit of fun. What’s a garnish? So, a garnish is some sort of decoration or embellishment. You usually think of it when you’ve got a food out as a presentation. You know, that fancy turkey dinner you see on the TV with some parsley on the outside, maybe some lettuce, that sort of thing.

Doug H:     Exactly, parsley, parsley is a garnish.

Ted M:     Now, on the same token though, garnish is also a legal term which means to serve with a garnishment. So, I guess we’ll have to talk about what a garnishment is. So, you can actually be garnished. How’s that for confusing things?

Doug H:     So the answer is all the terms are correct then.

Ted M:     Sure. Well, we didn’t talk about garnishee, which is a funny term. It’s generally the one that most legal professionals think of when you’re talking about taking a deduction from somebody’s wages, you are garnishing them. But it’s correct to say garnishment, garnishee or to garnish. You’re right, it’s all right.

Doug H:     It’s all right. So, that’s good so that’s one of the few terms where it doesn’t really matter how you use it because I get corrected on that all the time. People say oh well, garnish, that’s something you put on your food which is why I typically use the term garnishee but they’re all correct.

So, okay so now for the real question, what sources of income can be subject to a garnishment order? So, obviously we help people with many different sources of income, the most common sources of income would be wages, Ontario Works, disability payments, pensions and there’s even this new basic income that’s being piloted in Ontario we can talk about.

So, let’s start with the most obvious source of income, which is wages. And can wages be garnisheed? So, in Ontario we have something called The Wages Act, it’s really short, it’s only three pages long so we’re going to quote from it now. So, obviously if you’re listening to this podcast outside of Ontario Canada the laws will be different in your area but the basic concepts in most provinces and states are very similar. So, this should still be a good guide for you but again we’re talking only about laws that apply in Ontario. So, Ted let’s start with the obvious question, quote me from the act, what is the definition of wages?

Ted M:     Alright, so wages mean wages or salary whether the employment or with respect to which is the same payable either by time or by job or by piece or otherwise. So what that means is it’s money you’re getting paid for working. It doesn’t matter if you’re getting paid by the hour or piecework or my salary, it’s all considered wages, you earned the money.

Doug H:     Okay and that’s pretty simple something I get paid for working, that’s what wages are. Now you and I both have jobs.

Ted M:     So far.

Doug H:     So far, depends what we say on this podcast I guess. We both get a paycheque. I mean we happen to own the company that pays us but we do get a paycheque. And as every employee knows money is deducted from that paycheque. So, if I make $15 an hour, I don’t get paid the entire $15 because my employer is required to take off money for employment insurance and CPP and income taxes. So, when we’re talking about wages subject to a garnishment – how do those deductions factor into it?

Ted M:     Okay. So the act very clearly says that your wages do not include an amount that the employer’s required to deduct by law from wages, so that would be your CPP, your EI premiums, any other legally required or statutory deduction from your pay. So if someone is getting a garnishment order against you, your wage – it’s on your net pay or rather your pay net of government deductions.

Doug H:     Your net pay, okay.

Ted M:     That’s easy to understand.

Doug H:     That’s easy to understand, so, if I get paid $15 and a $1 is coming off, I’m only really getting $14 an hour, I can be garnisheed on the $14, not the $15.

Ted M:     That’s right.

Doug H:     Okay, so the real question, the big question is, what percentage, how much of my wages can be garnisheed?

Ted M:     Alright, so this is where the government gets cute. So in the Wages Act it says subject to subsection 3, which we’ll talk about in a second, 80% of a person’s wages are exempt for seizure or garnishment. So, instead of saying that they can take 20% of your net pay, they say 80% of your net pay is protected.

Doug H:     Yeah, this is why the government just drives us crazy. But okay, yeah so you’re right, why not just say 20%, they can take 20%?

Ted M:     Well, it’s easier to understand now. Subsection 3 says that 50% of a person’s wages are exempt from seizure or garnishment in the enforcement of a support order. So that means that if you’ve got a spousal support or child support order they can take up to 50% of your next pay.

Doug H:     Okay so let’s do some math here then. So my gross salary is $1,000 and my employer’s required to deduct $200 for E.I, CPP and taxes so normally my net paycheque is $800, what’s the maximum that can be garnisheed?

Ted M:     Alright, so for what we’re going to call a regular creditor, a normal creditor, an execution creditor, those are all terms that people use, they can take 20% of your net. So, if your net is $800, 20% of that is $160, your pay would be $640. Now if it’s a support order, it can be 50% of your net. So, if your net is $800, 50% of that is $400, you’d receive $400 in pay. There’s another twist though.

Doug H:     So tell me the other twist then.

Ted M:     So, the other twist is that the court has the right to adjust those exemptions up or down. Effectively any time something’s in court, judges have the discretion that they can say well, the 20% isn’t fair, you can afford more or that’s too much. And so you’ve got to keep in mind that the vast majority of the times 20% is the limit for an execution creditor, somebody that sued you, 50% is the limit for a support order.

Doug H:     But it someone goes to court and convinces the judge to make it different then it could be different.

Ted M:     Right.

Doug H:     So we’ll talk about CRA shortly but as a general rule, federal law trumps provincial law so Revenue Canada is typically not bound by that 20% limit either. So, we’ll get back to that.

So, okay let’s knock through then the different kinds of income that people can receive and ask the question whether or not that could be subject to a garnishment order. And the reason we’re doing this show is because one of the main reasons people end up going bankrupt or filing a consumer proposal is, I don’t want my wages to be garnisheed.

Ted M:     Right. They’re afraid of what’s going to happen. They’re having a hard enough time living paycheque to paycheque and suddenly now part of their paycheque’s disappearing.

Doug H:     And so if you have a job and are getting paid wages then it is very likely, well not very likely, but it is possible that your wages could be garnisheed. But other sources of income may or may not be able to be garnisheed. So, if they can’t be garnisheed maybe you don’t need to do a bankruptcy to prevent a garnishment order. Maybe there’s other reasons but maybe you do. So, okay let’s start with Ontario Works also knows as social assistance, can social assistance, can Ontario Works be garnisheed?

Ted M:     So by law it cannot be. Section 23 of the Ontario Works Act says –

Doug H:     That is a special act that covers this particular thing.

Ted M:     We’re going to throw more laws at you today than anybody wants to hear about. But it basically says that basic financial assistance, which is what Ontario Works, social assistance, welfare cheques are, is not subject to alienation, transfer and is not subject to a garnishment attachment or execution seizure or receivership order under any other act. So, it basically says that they can’t garnishee your Ontario Works money.

Doug H:     What if I owe child support and I’m on Ontario Works.

Ted M:     This is where it always gets great. So child support can be taken from any sort of income.

Doug H:     And that’s specifically mentioned in the act too.

Ted M:     That’s right. And it’s basically because if somebody’s been ordered to pay spousal or child support, then presumably that order is based on whatever type of income they had at the time and the recipient needs that income to maintain a standard of living for the child or the ex-spouse so it’s just got to be done.

Doug H:     Okay, so that makes sense then. So, Ontario Works cannot be garnisheed except if there is a support order outstanding then possibly that it could be.

Ted M:     Right.

Doug H:     So then let’s go into the next category which is disability payments. So, can a disability pension be garnisheed? Now there are two common categories, company plans and government plans. So, a company plan would be where you have a disability coverage through work so if you become disabled the disability insurance plan pays you. So, I mean in effect it’s a replacement for lost wages because you can’t work. So Ted the question is garnishee or no?

Ted M:     So it can be garnisheed. And so the real critical element here is that it’s an insurance plan that you’ve purchased to replace your wages. It’s not a social benefit. So the act says for the purpose of this section, payments from an insurance or indemnity scheme that are intended to replace income shall be deemed to be wages. So it’s very clear, if you’re off work and you’re receiving insurance benefits from work, they can be garnisheed.

Doug H:     And that’s from the Ontario Wages Act. So, that’s the way you’ve got to think about it, disability payments from work are just like wages, really no different. So, okay that’s if I have a company disability plan, what if I’m getting my disability payments through a government organization like for example ODSP? So ODSP stands for Ontario Disability Support Program and of course there is an act called the Ontario Disability Support Program Act, what does it say?

Ted M:     Alright so it specifically says in section 18, income support under this act, subsection B, is not subject to garnishment attachment execution seizure or receiver under any other act. So, it cannot be garnisheed.

Doug H:     And same clauses though with respect to support orders.

Ted M:     Yes  and no, and that’s going to apply in every case. So, I guess we need to make sure that people clearly understand there are execution creditors, people that have sued you that have the right to try and garnish your wages. And then there’s orders under the family law act for support. The Family Law Act orders are always going to be able to pursue whatever form of income you have if the court has ordered that you’re required to pay support.

Doug H:     So there you go. So to summarize this then, wages can be garnisheed, disability payments from your employer for lost wages can be garnisheed ’cause they’re really just a replacement for wages. Ontario Works and Ontario Disability Support Payments, ODSP cannot be garnisheed or attached because as you said the execution creditors cannot get them with the exception of support orders for child support or spousal support. And we know all this because we’ve reviewed the Wages Act, the Ontario Works Act and the Ontario Disability Support Payments Act. So that’s more lawyer stuff than we’ve ever done on this show.

Ted M:     And there’s more to come.

Doug H:     More to come because the final common category that people get is pensions. And yes of course there is an Ontario Pension Benefits Act; it’s by far the longest of acts that we’ve looked at so far. The Wages Act had eight sections; the Pension Benefits Act has 116 sections. So, Ted you’ve read them all I know. You’ve always wanted to be a lawyer when you grew up. How many of those 116 sections in the Ontario Pension Benefits Act deal with garnishments?

Ted M:     Let me think about this, none.

Doug H:     None. So, if you get a retirement pension from where you used to work, there is nothing in the legislation that specifically permits a creditor to garnishee. That’s good.

Ted M:     That’s good.

Doug H:     Now there’s also federal legislation, called the Canada Pension Plan Act, it has 118 sections ’cause of course the feds have to have a couple of extra sections. How many of those sections deal with wage garnishments?

Ted M:     None.

Doug H:     Good. So, the final category of government pensions is the old age security program, which is the Government of Canada’s largest pension program, a lot of people don’t know that. So, can retirement income be garnisheed? So, let’s start with OAS, so the Old Age Security Pension, that’s a monthly payment. It’s available if you’re age 65 or older and you meet, you know, Canadian legal status, meet the resident’s requirements. You probably have to apply to receive it.

Back in 2016 the income threshold was $73,756. So, if you earn more than that you don’t get the full OAS pension. And in addition to the OAS pension there are three types of OAS benefits. I mean I don’t know how the government could have made this more confusing but there’s the guaranteed income supplement and so what’s the guaranteed income supplement?

Ted M:     So you live in Canada and you’ve got a low income, this monthly non-taxable benefit can be added to your OAS pension. Basically it’s topping you up.

Doug H:     It’s a top up. And then there’s also an allowance, what’s the deal on that one?

Ted M:     So if you’re 60 to 64 years old and your spouse is already receiving OAS pension, you may be eligible for the guaranteed income supplement. So, it’s a top up if you’re the spouse of somebody receiving the pension already.

Doug H:     And you’re obviously slightly younger than them. And there’s also something called the Allowance for the Survivor.

Ted M:     Right. So, if you’re 60 to 64 years old and you’re widowed or a widower, you may be eligible to receive this benefit. The idea is that it’ll bridge you until you’re eligible to receive the benefit yourself at 65.

Doug H:     Right. So, those last two, the allowance or the allowance for the survivor obviously disappear when you’re 65 because then you’re getting the full OAS. So, there is of course an Old Age Security Act. Fortunately it’s only got 46 sections. So, Ted is there anything in the Old Age Security Act about garnishments?

Ted M:     Nothing.

Doug H:     Nothing. So OAS can’t be garnisheed by a normal creditor. But your payments can be suspended by the government if you cease to reside in Canada or if you’re in jail or if your income is too high. But those are not garnishments.

Ted M:     Right.

Doug H:     So, okay let’s talk about some exceptions to all of this then. So there’s nothing in the legislation that allows a creditor to garnishee my CPP or OAS so that sounds great.

Ted M:     Yep.

Doug H:     But there are five cases, at least that I can think of, where you could lose some or all of your government pension. So, Ted I’m going to say the list and you just fire in your comments on each one. So, number one exception to the pension rules is pension funds deposited into a bank account where you owe money.

Ted M:     So, once the money is deposited into your bank account it is co-mingled. So it’s no longer pension money and now it’s just your money and the banks have the right to seize it if you owe them money on one of your other accounts. It’s called The Right of Set off. So basically if you owe $500 on your Visa Card you’ve got $500 in your bank account, wherever that $500 came from, they’ve got the right to take it if you don’t make your payment.

Doug H:     So pretty simple. And that’s why we always recommend if you’re going through financial trouble it might not be a bad idea to open a new bank account at a bank where you don’t owe money.

Ted M:     That’s an excellent way to protect yourself because the banks will do this without telling you.

Doug H:     Because they have the power to do it. Okay so the second exception to this rule that says pensions can’t be garnisheed, what if I owe child or spousal support arrears?

Ted M:     Okay, so remember we said all along here that if you – sorry, support orders from the Family Law Act can take up to 50% of your pay. It’s usually done by the Family Responsibility Office, which is another government agency. So if you owe support they can come after your pension too.

Doug H:     And we’ve certainly seen that happen.

Ted M:     Yes.

Doug H:     Now I kind of glossed over Revenue Canada in one of the previous segments. So, if I get a pension and if I owe money to Canada Revenue Agency, obviously for taxes, what power do they have?

Ted M:     Well, at Canada Revenue Agency, I mean they’re a power onto themselves. So they can do all sorts of things without getting any oversight from anyone else. So no court orders required, they simply send a letter to your bank or to whatever program is offering you the benefit and start garnishing or seize the money.

Doug H:     So they can send a letter to CPP or OAS or whatever and start taking money.

Ted M:     And when you think about it, it’s just the same right of setoff that the other creditors have, it’s just that the government is more powerful. So, if you owe them money for taxes why would they keep paying you your pension?

Doug H:     And we’ve actually seen that happen.

Ted M:     Yeah and it’s frustrating for seniors because obviously the folks receiving that pension, it’s usually the only form of income that they’ve got. Something horrible has happened and now they’ve got the added problem of the government wanting the rest of their money.

Doug H:     Yeah because if they had other sources of income, the government would be going after that presumably. So, okay so category number four, exceptions to the pension rules, income security overpayments. What are we talking about here?

Ted M:     So if you get a government benefit think of it like the Old Age supplement. Another one is the Child Tax Benefit, things like that. If they overpay you, or have overpaid you in the past, then they will claw back a portion of your benefit in the future. They don’t consider it a garnishee per se; they consider it a claw back and an offset.

Doug H:     But the effect is the same. Instead of me getting 800 bucks a month, now I’m getting 400 bucks a month.

Ted M:     Correct.

Doug H:     If it walks like a garnishment and quacks like a garnishment, it’s a garnishment, right?

Ted M:     Yep.

Doug H:     So, and I guess kind of a very similar line, number five in the exceptions is social assistance repayments.

Ted M:     Right, so same thing. If you’re on Ontario Works or ODSP or any form of social assistance or welfare, if they believe they have overpaid you in the past then they will claw back a portion of your future benefits to recover that money.

Doug H:     Cool. Okay now everything we’ve talked about up to this point we’ve been quoting the act. Ted has spent the last five weeks in detailed study reading every single act. And we’ll summarize all this at the end but there is one more source of income that we haven’t talked about and it’s a source that Ted and I have never encountered in real life and it’s not covered by any legislation so we don’t really know what the answer is. But hey, that’s never stopped us before, we’ll discuss it anyway and that’s basic income.

So, back on show number 114 in November 2016 my guest was David McDonald, a senior economist with the Canadian Centre for Policy Alternatives. On that show David described the concept of basic income and if you’re interested in a full explanation I’ll put a link to that show over in the show notes over at hoyes.com/podcast. In simple terms if basic income became widely available, everyone would get a payment each month whether they are working or not.

Now in 2017 the Ontario government started a pilot project to test basic income. A pilot project is currently operating in Hamilton, Brantford and Thunder Bay, participants must have lived in these communities for a least a year and still live there. They must be between 18 and 64 years old. So this isn’t for seniors, obviously there’s other programs for them, and they must have a low income, which is defined as being under $34,000 if you’re single or under $48,000 for couples.

Participants in this test will receive around $17,000 per year for a single person or $24,000 per year for couple less half of any income they earn. People with a disability will receive an extra $500 per month. And I’m not going to get into the mechanics of this and whether it actually makes sense or not. I mean my comment off the top of my head would be this doesn’t sound like basic income if you’re going to have these deductions and so on and so forth. But okay, fine, that’s the way the policy is right now.

So, here’s the question, if you are a member of this pilot project and you’re receiving a basic income payment and you have debts, can your basic income payment be garnisheed by a creditor? And this is a very relevant question because as we know from our Joe Debtor study, people who file a bankruptcy or a consumer proposal in Ontario have incomes that are around 40% less than the median income in Ontario.

So since the participants in the basic income study are people with lower incomes, it is likely that at least some of the participants have debts. So, if they owe money on their credit card and don’t pay, could the credit card company go to court, get a judgment, and then enforce that judgment by garnishing their money basic income cheque?

Ted M:     And the answer is we just don’t at this point. It hasn’t been tested in court yet that we’re aware of. It doesn’t seem to meet the definition of wages because you haven’t earned this income for doing something, unless you consider being alive a way of doing something.

Doug H:     Well wages are defined as an employer paying you something and obviously there is no employer here.

Ted M:     It doesn’t appear to be a pension, right? I mean it’s, if anything it’s like government assistance. But unlike Ontario Works or ODSP, there’s no specific protection in the legislation so at this point we just don’t know.

Doug H:     Yeah. And we just don’t know. And I’ve talked to a number of people who are involved in this on many sides of the issue and this is a very serious concern. The pilot project is something that people sign up for and so a number of organizations, I can think of one in Hamilton in particular, have said, you know, we’re kind of reluctant to be encouraging people to sign up for this if what we’re really doing is giving them income that potentially can be garnisheed.

Ted M:     Right.

Doug H:     So it’s a bit of a worry. So at this point in time, our opinion is there is no specific law that says it cannot be garnisheed.

Ted M:     Right. So, it’s really going to come down to the first few test cases in court and the judge’s perception of what this law’s supposed to do.

Doug H:     And then presumably the government will then pass laws to codify how it should work, exactly what they’ve done with OW and ODSP.

Ted M:     One of the reasons this is so important is because people are saying that the basic income is a benefit that will replace a lot of other government programs. So right now it’s in the test phase but if the government likes the results, they believe that it’s beneficial to the public and can save them some money somehow, you know they’re going to roll this out in a bigger way and this is going to become a very important aspect of it.

Doug H:     Yeah because if everyone had a basic income you wouldn’t need Ontario Works.

Ted M:     Right or pensions.

Doug H:     Yeah I mean I guess pensions –

Ted M:     Not the old age supplement or the CPP.

Doug H:     Yeah maybe those go away too depending on where at age 65 basic income disappears because there are other programs there. So you’re right they’re going to have to figure out what they’re going to do if this becomes a thing. And I would assume the government would just put those same clauses that you read from the Ontario Works legislation, the ODSP legislation and so on.

Ted M:     Can you imagine on how annoyed the public would be if suddenly they found out that these supplements were being garnisheed by creditors. There’d be a revolt.

Doug H:     Yeah we come up with basic income to support the banks.

Ted M:     That’s what it sounds like.

Doug H:     Which is what it sounds like.

Ted M:     So we’ll see.

Doug H:     So stay tuned, we’ll continue to monitor this very closely and as we know more we’ll report back. Obviously this pilot project will run for awhile at which point the results will be assessed and we’ll see what happens from there. So, okay let’s get to the meat of it then and that is what can you do if your wages are being garnisheed or about to be garnisheed? So, people now understand what can be garnisheed, what can’t be, let’s take the very simple case of okay, I’ve got wages and they’re saying they’re going to take me to court, they’re going to garnishee my wages or it has already started. So, Ted what’s the advice you give people in that situation?

Ted M:     Well, so unless you’re a lawyer and knowledgeable about this stuff, you need to get some help. The best advice I can give you is to call a licensed insolvency trustee because this is what we do for a living. You’re going to see ads from debt consultants, financial consultants, credit counsellors. All these people are trying to sell you something, they’re not necessarily going to give you the answer that you’re looking for. A licensed insolvency trustee is required by law to describe to you your options, what you can do to stop the garnishee to deal with all of your debts.

Doug H:     So if I am being garnisheed right now, what can I do to stop it?

Ted M:     Alright, so the easiest way to stop it is to pay off the debt in full. If you could have done that then obviously –

Doug H:     You would have done that already.

Ted M:     You probably would have done that already. So you can try to negotiate with the creditor, whoever has got the execution against you for the garnishee and say look, this is what I’m going to do to help you. If they’ve gone to the trouble of garnisheeing your wages, I think they’re not going to be very receptive to any kind of deal you’re going to offer them at this point.

Doug H:     ‘Cause they’ve already spent the money on the court and everything.

Ted M:     Well and they only took you to court because you weren’t very faithful about paying them for whatever reason in the first place. So, you have legal options though, you have the right to file a consumer proposal or you could file for personal bankruptcy. And we could talk a little bit more about both of those things, it probably makes sense.

Doug H:     Okay, so let’s start with personal bankruptcy then. Personal bankruptcy stops a garnishment, is that correct?

Ted M:     That’s right. The only type of garnishment that it will not stop is for support orders, so child support, spousal support. Just like all those other exemptions we came across when we were reviewing the six or seven laws in this program, you cannot stop an order for support for somebody else through bankruptcy law. And the idea is that you’re diving your income to support your children, your spouse, from a previous relationship and that’s protected under the law.

Doug H:     So that doesn’t go away. But otherwise the garnishment will stop. So, the process would then be, they come in, they see you, you do up the paperwork, how long does it take to stop a garnishment?

Ted M:     So, someone that’s got all the information required to put these documents together, you can stop a garnishment in a couple of hours. It can literally be done that quickly. The reality is that we need to contact your employer after you’ve filed the bankruptcy. Give them a notice that’s called a stay of proceedings, we also send the same notice through to the court telling everyone you filed bankruptcy now, you’re protected under the law, the garnishee has to stop.

Doug H:     And so part of it depends on your employer. And I know a lot of people say oh, I don’t want you contacting my employer, I don’t want everyone to know. Yeah, well unfortunately –

Ted M:     It’s already too late because somebody’s contacted your employer to garnishee your wages. The only way we can stop them is to contact your employer to say no, no, no you’re not allowed to do this anymore, this person’s protected under the law.

Doug H:     And so the speed at which we can stop the garnishment is really dependent on the information you can give us. If you work for a big, huge company that has 15 people working in the payroll department, it would be really helpful to know here is the person who is dealing with my situation, here’s their fax number, their email address, their phone number, they’re going to be at work this afternoon.

Ted M:     Well and you know what I found, the bigger the employer actually the longer it can take. ‘Cause you need to know in advance that if you’re working for a huge company, they probably do their payroll a week and a half ahead of time. And so we’ll send the notice to stop the garnishee immediately and if they’ve already processed your next paycheque, it’ll come off anyway. Now the good news of that is they’re required by law to send it to us and we’ll help you deal with it as part of the bankruptcy as opposed to it going off to your creditors and you never seeing it again.

Doug H:     So we do what we can to do it as quickly as possible, we can start that process once you have filed your bankruptcy and we electronically send your bankruptcy to the Office of the Superintendent of Bankruptcy and we instantly get back, assuming there’s no glitches in the system, a certificate of appointment which is then the piece of paper with the fancy number on it that we need to stop that garnishment.

Ted M:     Yeah we don’t apply to the court to get you protection, it’s an automatic provision of the law. As soon as you have filed and we’ve got that number and as Doug said it’s all done electronically, it takes like two minutes, your protection’s in place.

Doug H:     So in theory if you come in to see us at 1:00 and sign all the paperwork at 1:30 we’re pushing the buttons. We’ve got, like at 1:31 in the afternoon we’ve got the piece of paper back from the government. If you’ve given us your employer information already then, you know, by in theory at 2:00 we can fax it to them or email it to them and they can then start the process to stop it. But as Ted said well, if payroll’s already been processed for this Friday then it may be the next one before you see it stopping come off your paycheque.

Ted M:     It’s one of the first questions we ask someone, when is your next pay date so we can give you an estimate of whether or not can we get this thing stopped before your next payday or is it probably too late?

Doug H:     And then you know from a cash flow point of view what’s going to happen.

Ted M:     Yep.

Doug H:     So everything you’ve said about personal bankruptcy, stopping a garnishment, what are the differences between that and a consumer proposal stopping a garnishment?

Ted M:     Well, so the protections under the law are the same. As soon as you file a consumer proposal, the creditor is stayed, which means legally they have to stop any type of garnishee, any type of enforcement action against you. So the same notices that we send under the bankruptcy, we’re going to send to your employer as part of the consumer proposal. And the difference between the two, bankruptcy’s is saying – you’re saying you can’t afford to repay any part of your debt, your proposal, you’re offering to pay part of it. And we’ve done whole programs on both of these things it’s a question of your own situation, which one of these solutions makes more sense.

Doug H:     Right. So back to your initial point, come in and see a licensed insolvency trustee.

Ted M:     Right because nobody else can do these things for you, you can’t go see a lawyer to get a bankruptcy filed or a proposal filed. You have to speak to a licensed insolvency trustee.

Doug H:     That’s just how it works. Kind of if you want heart surgery you have to go to a heart surgeon, that’s just how it is. So, we encourage everyone who thinks there’s a garnishment that’s about to start or is already in that situation even if it’s already started, even if it’s been going on for months, we can stop it, simple as that.

Excellent. So if you need to stop a wage garnishment, today’s broadcast is a good place to start but I also recommend as we’ve just said, talking with a licensed trustee about your options. That’s our show for today. Full show notes including a lot of links to all of the different legislation we talked about today and the time stamps on each different topic we talked about if you want to go back and listen to a specific section, can be found at hoyes.com and we will have a full transcript at hoyes.com as well. Ted, thanks for being here.

Ted M:     Always a pleasure.

Doug H:     Thank you and thanks for listening. Until next week I’m Doug Hoyes, that was Debt Free in 30.

The post Wage Garnishments: What Income Can be Garnisheed? appeared first on Hoyes, Michalos & Associates Inc..

Our biggest piece of advice if you receive a garnishment notice is be proactive and don’t panic.

First, a few basic definitions about wage garnishments:

• Wage – An amount of money that a worker is paid.
• Garnishment – A legal procedure the creditor goes through to collect on the debts owing by trying to take property that is in someone else’s hand other than the debtor.
• Wage Garnishment – Collecting a debt owing by notifying your employer to take a certain amount of money from your paycheque for the benefit of a creditor.

The wage garnishment process

Rebecca explains that a wage garnishment is part of provincial legislation, in Ontario that means under the Ontario Wages Act.  

Do I have to be notified of a wage garnishment?

In effect, you are notified by being a participant in the entire garnishment process. Here is how the wage garnishment process works:

1. A creditor first issues a Statement of Claim.
2. You have 21 days from the time that it is mailed to respond.
3. You can dispute the claim by filing a Statement of Defense within those 21 days if the debt is not yours or a mistake has been made.
4. If you do not respond, the court will rule in favour of the creditor and you automatically lose.
5. If you lose, or don’t defend the action, the court will a judgement in favour of the creditor for the debt.
6. Once the have a judgement order, you creditor can apply for a garnishment order.
7. A garnishment order is obtained.
8. Your creditor will notify your employer.
9. Your employer must comply to the order.
10. Your company can garnish your wages without notice because they must comply with a legal garnishment order, however typically they include a note with your pay stub.

Exceptions To The Rule of Getting a Court Order for a Garnishment

• Canada Revenue Agency does not need a court order and can send a CRA Requirement to Pay to your employer which automatically triggers the wage garnishment to start.
• Credit Unions include a Wage Assignment clause in the paperwork that you sign that stipulates that if you fail to pay, they can simply send that wage assignment to your employer.
• Any creditor can ask you to sign a document known as a voluntary wage assignment that entitles them to notify your employer to garnish your wages without going to court.

If you are dealing with the threat of a wage garnishment

A threat is different than the actual wage garnishment. It’s pretty easy for anybody to say I’m going to garnishee your wages.  Take that as a warning sign that you have a debt problem.

A threat of garnishment is usually a symptom of an underlying problem – you owe a debt you can’t pay. If you can’t pay your bills, you need to be proactive and deal with the debt head-on.

Dealing with the garnishment and the debt

A bankruptcy or consumer proposal is a legal proceeding that can stop a wage garnishment, and all creditor actions by way of a stay of proceedings.

You need to take control, which may mean finding a way to arrange payment if you can or contacting a Licensed Insolvency to help eliminate your debt if you can’t.

Resources Mentioned

• Ontario Wages Act
• Canada Revenue Agency

FULL TRANSCRIPT show #28 with Rebecca Martin

As frequent listeners to this show know, I’m the co-founder of Hoyes, Michalos & Associates. A firm that does bankruptcies and consumer proposals and I can tell you that based on my experience over the last couple of decades, that if I was to make a list of all the reasons someone calls a Bankruptcy Trustee in a panic, there is one common reason that is always at the top of the list. What makes someone in debt call my office in a panic? Two words, wage garnishment.

Obviously people go bankrupt because they have too much debt, but debt is generally something that builds up over an extended period of time. It doesn’t accumulate over night. So what’s the straw that breaks the camel’s back? What drives people to the breaking point and forces them to call our 310 plan helpline? Wage garnishment. If a bill collector threatens a wage garnishment or if a wage garnishment actually starts, many people decide they have no choice but to seek the protection of a consumer proposal or a bankruptcy because a bankruptcy or consumer proposal filing immediately stops most types of wage garnishment.

So, what is a wage garnishment? Is it legal? Who can get one? How do you stop it? Those are important questions so let’s spend the rest of the show talking about everything there is to know about wage garnishments.

To help me do that I’m joined today by Rebecca Martin, Rebecca thanks for being here. Welcome to the show. Can you give us a quick introduction about you?

Rebecca Martyn: Yes, as you said my name is Rebecca Martin. I am a trustee here with the Windsor & Leamington offices of Hoyes, Michalos & Associates. I got my training at a big accounting firm and joined Hoyes, Michalos back in 2003 once I received my license.

Doug Hoyes: There you go. So, let’s talk about the legalities of this first. So, let’s kind of go through this quickly and hit all the key points to begin with. So, we’re talking about wage garnishment, so tell me right off the bat, what is a wage?

Rebecca Martyn: A wage is something you get paid for working.

Doug Hoyes: Okay and what is a garnishment?

Rebecca Martyn: A garnishment is the actual legal procedure the creditor goes through to collect on the debts owing by trying to take property that is in someone else’s hand other than the debtor.

Doug Hoyes: Okay so what then is a wage garnishment?

Rebecca Martyn: So, the actual wage garnishment is the legal procedure where the creditor collects the debt owing to you by your employer.

Doug Hoyes: Okay so that’s where they’re taking the money off my paycheque. So, you call it a legal procedure, so I assume therefore it is governed by some law?

Rebecca Martyn: Yes there is a legislation or for it. It’s called the Ontario Wages Act.

Doug Hoyes: And therefore this only – what we’re talking about today – applies specifically in Ontario. It’s provincial legislation. So, if you happen to be listening to this show somewhere other than Ontario, the rules are probably very similar, but maybe not exact. So, that’s our little caution for the day. This is Ontario law that we’re talking about here today.

So, what based on the law, would not be included as part of wages?

Rebecca Martyn: Well, whenever you get paid you automatically have certain deductions, like E.I, C.P.P, income tax, those aren’t included as wages.

Doug Hoyes: Okay, so the wages are what I actually get. So, how much then under the law, the Wages Act of Ontario, how much can be garnisheed? What’s the maximum a creditor can get if they go through this legal procedure?

Rebecca Martyn: So, 20 percent can be garnisheed unless it’s for family support in which case it goes to 50 percent, but you have to keep in mind that the court can either increase or decrease that amount.

Doug Hoyes: Okay, so a typical creditor that would be someone like the credit card I didn’t pay, my bank loan, anything like that, the most they could get is 20 percent of my wages, unless the court says something different. Is that a correct summary?

Rebecca Martyn: That’s right.

Doug Hoyes: Okay, and so who can get a wage garnishment?

Rebecca Martyn: Well, anyone if you’re owing money. The creditor can take you to court, and if they win the court can give them the order to garnish your wages.

Doug Hoyes: And so, if I’m a creditor, let’s flip it around here then, somebody owes me money; let’s say I’m a bank or a credit card company, what do I have to do then? What’s the process? I have to go to court. How does that work? What’s involved there?

Rebecca Martyn: So, essentially the first thing you do is you issue what’s called a Statement of Claim. That gives the debtor so much time to actually respond to it. If there’s no response and it goes to court, the creditor automatically wins and the court issues a judgment and that judgment then allows them to garnishee the wages.

Doug Hoyes: And so, that judgement then I have to turn it into the garnishment order itself. So I have to go back to court to get that or there’s some further legal process I guess to get that. And how long does that take? Like if someone owes me money, can I get a garnishment today?

Rebecca Martyn: No, you can’t get a garnishment today. If you’ve ever seen a Statement of Claim form it says that you’re given a certain amount of time to respond, as the debtor. And I believe that’s 21 days from when it’s deemed to have been mailed, they will get a judgment unless there’s some sort of statement of defense filed.

Doug Hoyes: Got you. And in my experience, and I’m sure your experience is the same, it usually takes a lot longer than that. A big bank isn’t going to cut it right to the day. They’re probably going to send you out the notice, give you ample time to respond; they might give you 30 days, 40 days, 50 days, 60 days, whatever. And then, that’s when the court date actually happens. And so what you said, if I don’t show up in court, I automatically lose.

Rebecca Martyn: That’s right.

Doug Hoyes: Whereas if I do show up in court, I’ve got a chance to fight it. But my chances are pretty slim I would assume because I owe them money; unless I can prove I don’t owe them money, I’m going to lose is what’s going to happen.

So, are there any – we talked about the usual guys, banks, credit card companies, things like that – are there any special rules for anyone else other than those guys I just mentioned?

Rebecca Martyn: Yeah, that’s true. Canada Revenue Agency, they don’t need a court order. They can just notify your employer that you’re owing tax money and they can garnish your wages.

Doug Hoyes: So, what’s the piece of paper that they would send to your employer to do that?

Rebecca Martyn: The document is called a Requirement to Pay.

Doug Hoyes: So, it’s a Canada Revenue Agency Requirement to Pay notice. They don’t need to go to court to do that. They fill it out, they send it to your employer, boom, a wage garnishment can start. So, okay Revenue Canada – Canada Revenue Agency – doesn’t need to go to court.  Who else has special rules when it comes to wage garnishments?

Rebecca Martyn: Credit Unions do. They don’t need a court order as well. A lot of times when you get your loan from a Credit Union, they have you sign a piece of paper called a wage assignment. And if you’re not making those payments on that loan, they just send that wage assignment to your employer and that gives them the authority to garish your wages as well.

Doug Hoyes: That’s something that perhaps people don’t fully understand because they always think of a Credit Union as being, well they’re in my neighbourhood, they’re not a big bank, they’re very friendly. Well, yeah they are, but they also have this special power under the Ontario Wages Act that allows them to get a garnishment without having to go through the normal court process. Does that apply to anyone else? Anybody else on this list of special people that we’re talking about?

Rebecca Martyn: Well, I suppose if you get in any kind of debt and you signed with a creditor they can then technically send that to your employer and ask that your wages be garnisheed.

Doug Hoyes: So, any voluntary wage assignment. And we see this quite common. At least it has been in the past with things like payday loan. So, they give you the payday loan but they get you to sign a piece of paper saying if you don’t pay me then we can immediately go to court and – in fact we don’t need to go to court, we can just send this piece of paper right to your employer and start garnishing your wages.

Okay, so that’s the big picture on wage garnishments. Have you got any examples of people that you’ve run into, people you’ve helped, who had a wage garnishment and then you know if so, what did you do? What was the solution?

Rebecca Martyn: Well, you’re right. Just like you said at the beginning of the program that just the wage garnishment is what causes a lot of people to call us in the first place. And, so I thought I would share a couple of stories of people who I helped last week.

So, the first guy and I’ll call him Frank. And Frank’s not his real name; it’s just a name I made up. A few years ago he was self employed and as a lot of times happens, they ran into trouble and then started using his tax money, the money he should have been paying for tax money to help fund his business and before he knew it, he owed Revenue Canada $25,000. He eventually had to retire but he still owes Revenue Canada this $25,000. He can’t pay it. He can’t work out a payment plan so the only source of income he has now is C.P.P. So, Revenue Canada, Canada Revenue Agency starts garnishing his C.P.P. So, he came to see me and he decided to file bankruptcy. So, he files for bankruptcy, we sent notice to Service Canada, they’re the ones who issued the Canada Pension Plan and we sent notice to Canada Revenue Agency and then the next month he gets this full pension cheque again.

Doug Hoyes: And that stopped it right away then.

Rebecca Martyn: And that stops it right away. There’s a little big of a lag. But depending on when you’re filing and you can’t come in on, let’s say the last day of the month and expect the pension cheque tomorrow to have the garnishment removed from it. But the next month will have the garnishment removed.

Doug Hoyes: And that’s because obviously the cheque is being cut a few days in advance by the government or the electronic deposit has been paid.

Okay, so that was an example of somebody who had a government debt. Have there been other types of debts you’ve been able to help with when it came to wage garnishment?

Rebecca Martyn: Oh yeah absolutely. So, the other person I saw, I’m going to call her Joan. She went through a marriage separation and lost her car. So, the car company sold it and went after her for the balance owing. And so they took her to court and got the garnishment order and sent it to her employer and she said she didn’t even know about it. All of a sudden she gets a note for her HR department saying we have this notice, we’re going to garnishee your wages. She came to see me, she filed a consumer proposal. So, we notified the court, we notified the creditor, we notified her employer. You’re under consumer proposal protection so now the wage garnishment stops.

Doug Hoyes: So, the message here is for those types of debts that you just talked about, a bankruptcy or a consumer proposal, very quickly stops wage garnishments, and that for a lot of people is the whole reason that they do them. Great thank you very much, Rebecca, thanks for joining me. We’re going to take a quick break and then come back and talk a bit more about wage garnishments here on Debt Free in 30.

Announcer:       You’re listening to Debt Free in 30. Here’s your host, Doug Hoyes.
Doug Hoyes: We’re back here on Debt Free in 30 and today we are talking about wage garnishments. It’s one of the most common reasons that someone starts thinking about having to go bankrupt or file a consumer proposal. In the first segment Rebecca Martin walked us through some of the technical aspects, what is it? How does it work? And now we’re going to look at some practical things. I’m joined again by Ted Michalos. Ted, how are you doing?

Ted Michalos: I’m fine Doug. How are things?

Doug Hoyes: It’s all good. So, wage garnishments. Would you agree that this is in fact one of the main reasons that someone is contacting you? That’s kind of the impetus; the straw that broke the camel’s back kind of a thing?

Ted Michalos: That’s a perfect analogy. It is the straw that breaks the camel’s back. You’re already afraid about your debt loads and the people that you owe. You get notices from the court or collection agency and maybe you’ve been ignoring them. Finally somebody has taken you to court. They’re garnishing your wages, now what do you do about it?

Doug Hoyes: And it’s really the symptom of the underlying problem. I’ve had this underlying problem for a long time. It takes a while to go to court and garnishee someone’s wages, but now it crops up.

So, okay you asked the question. Give us the answer. What do you do about it? When you are threatened with a wage garnishment, and let’s start with that. Let’s say there’s not any actual court actions yet, but the collector says well if you don’t pay me I’m going to garnishee your wages. What’s your thought process at that point in time?

Ted Michalos: So, the first thing people have to recognize is, a threat is different than the actual wage garnishment. So, it’s pretty easy for anybody to say I’m going to garnishee your wages. Take that as a warning sign or a signal that it’s time for you to do something about this debt. So, they may or may not do it. Don’t leave yourself open to what they want to do. You need to take progressive steps that deal with the debt problem now. Now that may mean contacting someone like Doug or myself, somebody from our firm. It may mean simply moving money around. It depends on your own unique financial situation. The important thing to emphasize is, somebody’s made the threat, you need to deal with it before they actually make it a reality. You do not want a wage garnishee. You start missing mortgage payments and so on.

Doug Hoyes: So, what you’re talking about then is that you’ve got to be in control.

Ted Michalos: Yep.

Doug Hoyes: You’ve got to be proactive. Okay, so let’s talk about some proactive things you can do. So, you mentioned moving money around; what are you talking about there?

Ted Michalos: Okay, so the person that only has one problem account. Let’s say you defaulted on your Rogers account because you got mad at them because they’re crooks. You stopped paying that bill. They’re now threatening you with a wage garnishee. They’re going to take legal action against you. Alright well, pay off the account. That’s the simplest solution to make that problem go away.

The difficulty is, most folks we talk to don’t just have one account that’s in trouble, they have a series of accounts that’s in trouble or they’ve got accumulated debt; they don’t have access to money they can move around. I suppose you could take a cash advance on a credit card to pay off the Rogers bill, but now you’ve got a problem with the credit card.

Doug Hoyes: Yeah and that’s not certainly something we would want to recommend. So, if you have one account that’s relatively small and you can deal with it then you’re advice is pay it and you’re done. Problem solved. That’s it. So, if it’s an old cell phone bill, okay it’s $500, fine. I will come up with the $500 and pay them off. If it’s a $20,000 line of credit that I wasn’t able to pay, and now I’m a few months behind, they’re threatening to take me to court, they’re threatening to garnishee my wages, I can’t just ignore it. I can’t just move money around cause it’s too big a number. And you’re saying I shouldn’t be ignoring it because with an amount like that they’re probably going to do something.

Ted Michalos: Okay so the way that you phrase that question, pretty much produces the answer. You’ve got more of a problem than you can deal with yourself. So, you’ve got to look to outside sources.

So, the first place I always recommend is family and friends. So, if you’ve got other people that you rely on and you trust that will give you good financial advice. Now be careful here. You’re talking about your money. I know you’re uncomfortable talking to anybody about it but getting advice from Aunt Betty may not be the best source of advice to deal with this problem because there’s a threat for legal action.

Doug Hoyes: Well, and Aunt Betty may not be a financial expert. So, when my car’s making a funny noise I probably don’t talk to Aunt Betty because she’s probably not a mechanic. Now I do have a brother-in-law who is a mechanic and she would be a perfect person to talk to. So, family and friends is a great place to start but you’ve got to kind of take the advice with a grain of salt. And I guess what you’re really saying is look if Aunt Betty is rich and can loan you the money to pay off the debt, fine, then she’s an excellent person to talk to.

Ted Michalos: Or Aunt Betty may have been through this herself before. So, she may have a solution or a path that you can follow. And what you’re looking for is tools to help you through the problem. So, you start with family and friends because these are people that you trust.

The next layer out is some sort of professional. Do you talk to your banker? Well maybe if you don’t have a lot of debt, if there’s only one or two things and then there’s a chance that you can consolidate or group things together. It might be more effective to talk to your accountant or lawyer if you have access to those things. Frankly, I think the average person, their best bet is to go on the internet and find someone like us; a Credit Counsellor perhaps, a Trustee in Bankruptcy, somebody who is a trained professional in dealing with debts.

Doug Hoyes: So, let’s talk about the banks. That would be an obvious thing. I owe a bunch of money to this guy, if I can borrow some from that guy, pay it off then I’m good. What do I need to worry about though when I’m talking to the bank?

Ted Michalos: Well, the first concern for the bank is, they want to lend you money when you don’t need to borrow it. If you’re already in trouble, the bank’s going to say well we’ve already loaned you some money in the past, if I loan you more to pay off the other guy, now I’ve got all your eggs in my basket if something goes wrong, I’m going to take a hit. And more importantly, they may charge you extra money because they’re now saying oh you want us to help you out when you’re in trouble? That’s a little more problematic than when you go to them when you don’t have any problems at all. So, the bank is a logical place to look, but I wouldn’t put a lot of faith in that unless you don’t have a lot of debt; your situation isn’t complicated.

Doug Hoyes: And this is a numbers game.

Ted Michalos: It’s all a numbers game.

Doug Hoyes: So, if the bank or the finance company is going to charge me a pretty high interest rate because like you say I’m already in a bit of financial trouble, then am I just making my problems worse by trying to replace one debt by another? Obviously I don’t want to be doing that.

Ted Michalos: What you are, is you’re trying to buy some time. And remember what we’re talking about here is how do we avoid a wage garnishee. So, buying time is good, it doesn’t solve the problem. What you really want to do is dig down and solve the problem. So, if you have a sore tooth you go to the dentist. If you’re hair’s looking bad you go to your stylist. If you have problems with your finances, with debt, you should talk to an expert that deals with finance and debt.

Doug Hoyes: My hair looks great. You can’t see it on radio. I just want to make that point. And so you’re right. You’ve got to look at the bigger picture here and treat the underlying problem. I’ve got too much debt, that’s why I haven’t been able to pay them back. Now, buying time might be a perfectly good answer in some cases. If I’ve got a $1,000 cell phone bill but I know my tax refund’s coming in in a month and I know it’s going to be $1,500, okay then buying time makes sense. If I know that at summer shut down we get all our vacation pay paid out and I get a summer bonus, great maybe that’s enough to clean it up so buying time makes sense.

But let’s take the scenario then where buying time isn’t going to solve the problem, yeah okay I’m getting $1,000 tax refund but I’m being potentially sued for $20,000, that’s not going to work. Buying time isn’t the answer. So, what are the next steps then? What are the next things I should be thinking about?

Ted Michalos: Alright, when you do speak to a professional they’re going to talk to you about credit counselling as a solution, consumer proposals, maybe even personal bankruptcy. All of those things may be intimidating because you’re not familiar with them, you don’t know they mean. So, do a Google search on all three terms to get a better idea about it.

But frankly, what we’re talking about is a structure or solution that somebody can provide you with to get you out of this trouble. Now right now we’re just talking about the threat of a wage garnishee. So, the problem here is you’re afraid. If you want a real problem, don’t do anything and they start garnisheeing your wages. Now you got a real problem the wage garnishee is a bigger problem than just owing the debt because now there’s no money for the rent, groceries, you can’t put gas in the car. Things are going to start – it’s a domino effect. You’re going to have a problem across the board, not just where you were.

Doug Hoyes: And if you got a legal garnishment coming against you or it’s already started, then at that point you’ve got a consumer proposal or a bankruptcy or pay it; those are your only choices and that’s what you got to do.

Ted Michalos: Pretty much it.

Doug Hoyes: Okay, well I think that’s a good summary. So, in summary what you’re saying is you’ve got to be in control, you’ve got to be proactive, sitting there waiting for the problem to go away isn’t going to help. The threat of a garnishment is nowhere near as serious as an actual garnishment. They’re going to threaten you all the time, but you can’t leave it forever cause if they do take you to court then you’ve got a garnishment and that really mucks up your personal finances. I appreciate that, thanks for coming in, Ted.

Ted Michalos: Have a nice day.

Doug Hoyes: Thanks very much. We’ll be back to wrap it up right here on Debt Free in 30.

Doug Hoyes: Welcome back. It’s time for the 30 second recap of what we discussed today. My first guest today was Rebecca Martin who explained that a wage garnishment is a legal procedure where someone you owe money to, collects a debt by taking a portion of your pay cheque.

In our second segment Ted Michalos gave a practical approach for dealing with a wage garnishment. That’s the 30 recap of what we discussed today.

So, what are my thoughts on wage garnishment? Well, as I said twice during the show, a wage garnishment is often the proverbial straw that broke the camel’s back when it comes to debts. We often assume that our debt problems are not serious until a wage garnishment starts. When we start losing a chunk of our paycheque, we know we have a problem.

I agree with what Rebecca and Ted said on the show. A wage garnishment will not just disappear on its own. You have limited options for dealing with a wage garnishment. You can quit your job, but that’s not a great long-term solution. You can let the garnishment continue, but that can be very costly. Think about what it’s like to have an immediate 20 percent cut in your pay, and you can see by just letting the garnishment continue may put you in a very difficult financial position. If you’re wages are being garnisheed for one debt, it’s quite likely that you have other debts as well and that’s why often the solution is to file a consumer proposal or bankruptcy. That’s not a decision to be taken lightly, but as Ted said earlier sometimes it’s better to put your debts behind you and get a fresh start.

That’s our show for today; we’ve got more information on how to stop a wage garnishment on our website at hoyes.com. We also have full show notes on our website and links if you want to download an audio copy of this show. That’s hoyes.com, h-o-y-e-s-dot-com. Thanks for listening. Until next week, I’m Doug Hoyes. That was Debt Free in 30.

It’s time for the Let’s Get Started segment here on Debt Free in 30. I’m Doug Hoyes and today I’m joined by Rebecca Martin, who is a Bankruptcy Trustee and Consumer Proposal Administrator at our Hoyes, Michalos office in Windsor and Leamington, Ontario.

Rebecca, thanks for sticking with me here. We’re talking about wage garnishments today so let’s start at the very beginning. Give me a quick definition. What is a wage garnishment?

Rebecca Martyn: A wage garnishment is the document that allows the creditor to take a portion of your income.

Doug Hoyes: Okay and it’s governed by the Wages Act of Ontario. There are specific limits. A normal creditor can only garnishee 20 percent of your paycheque; however for people listening today, think about that. If I was to lose 20 percent of my paycheque, what kind of shape would I be in? The answer is, not very good.

So, if someone is faced with a wage garnishment, walk us through your advice. So, let’s say they get a piece of paper in the mail that says there’s going to be a court action coming up. What’s your advice? What should they do with that piece of paper?

Rebecca Martyn: Well, if they get a document saying there’s a court action coming up, they really need to take some sort of action. As you mentioned earlier if they actually are disputing this debt, they need to go to court. They can’t just ignore it. If they ignore it, it doesn’t matter if they don’t owe the money, they’re going to get a judgment against them.

So, if they think they have some sort of defence, they need to actually file a Statement of Defence and if they look at the bottom of that Statement of Claim form, it actually does list a website address where they can obtain the document. Or it will have the phone number for the local court. Call the court, tell them you’re disputing the debt, have them walk you through it and how to fill out a piece of paper to file a Statement of Defence. If there is no defence, if this is legitimately your debt, you haven’t been able to work out a payment plan then you need to talk to someone.

Doug Hoyes: And really the only legitimate defence is going to be I don’t owe them money. I already paid it. I have cancelled cheques that show I paid it or this was never my debt to begin with, they’ve obviously got me confused with somebody else. There’s some legitimate reason why it’s not your debt, in which case, as you say, you’ve got to file a statement of defence and usually the local court is pretty helpful with that. But like you said you can go on the government website and get that information as well. And based on that then you file your statement of defense.

Assuming you legitimately do owe the debt, you go to court and the judge says well you owe the debt, sorry, you lose, here’s a garnishment order given to the creditor. So then, let’s put myself in that position. I now know that my wages are about to be garnisheed because I’ve got this judgment against me, what are my options?

Rebecca Martyn: So you essentially have I guess four options. You do nothing, you just let the garnishment go on and you just deal with 20 percent of your wages taken until the debt is paid off in full with interest.

Doug Hoyes: And that maybe makes sense if it was an old cell phone bill for $300. Okay fine I guess I’m going to lose $300, plus interest, plus court charges off my paycheque, but okay probably not that big a deal. What if it’s a bigger amount? What are the other options I’ve got?

Rebecca Martyn: Well you can try going back to the creditor and working out a payment plan. I say try because the reason they went to court is you weren’t able to work out a payment plan. But you could always go to the creditor and say I realize I owe all this money, let’s see if we can figure out a payment plan to get the garnishment lifted and allow me to receive my wages and you to get some money for the next how many years to get it paid off in full.

Doug Hoyes: And in your experience is that likely to be successful or not?

Rebecca Martyn: No, I don’t think it’s likely to be successful because the creditor’s there because you couldn’t work out a payment plan in the first place or you chose to ignore them.

Doug Hoyes: Yeah and they’ve already got this piece of paper from the court saying that they can garnishee wages, so why – there’s no leverage now why –

Rebecca Martyn: Yeah, why are they going to take less?

Doug Hoyes: Makes sense. Okay, so that’s the first two options, what are the final two?

Rebecca Martyn: So, to get the wage garnishment lifted you can either file an assignment of bankruptcy or you can file a consumer proposal.

Doug Hoyes: And we’ve talked about those different options in shows in the past. And the decision as to whether I do a bankruptcy or a consumer proposal is going to be a number of different factors. It’s going to have to do with my income, what I own. If I own a lot of assets I don’t want to go bankrupt because I could potentially lose them. A proposal is often a better option in that case. So, let’s assume we pick the proposal option then. So, the debtor then contacts someone like you. That would be the next step I assume, right?

Rebecca Martyn: Yep, that’s exactly it. They contact us. We basically have to gather a whole bunch of paperwork and then we get them back here to actually start the process. And the day they sign, that’s the day that the court and their employer gets notification saying that the debtor’s under protection, the wage garnishment lifts.

Doug Hoyes: So, let’s walk through that piece of it. So, let’s say I come in. You need a bunch of information. You need to know who I owe money to, what my income is, that sort of thing. That takes a couple of days, to get that up and running. You get the paperwork printed up. I come in to see you at 9:00 in the morning to sign the paperwork. Walk me through what happens next then. So, I sign the paperwork, what happens next?

Rebecca Martyn: So, once you sign the paperwork we electronically submit it to the Office of Superintendent of Bankruptcy. As soon as we get that file number we can then issue what’s called a Stay of Proceedings –

Doug Hoyes: So, how long does it take to get that file number?

Rebecca Martyn: Basically as soon as you press the button, it’s instantaneous.

Doug Hoyes: Instantaneous. So, you’ve got a direct link with the government. It’s not like you’ve got to fax it in and wait three days. If everything’s in order, I’m still sitting there having just finished signing the piece of paper, you’ve now got that file number back from the government.

Rebecca Martyn: That’s right.

Doug Hoyes: And then from there it’s just a case of sending a special piece of paper, the stay to the creditors and that stops the garnishment.

Rebecca Martyn: Yeah and we notify the employer so they know.

Doug Hoyes: So, it’s not coming off my cheque. Perfect, well that’s a good way to end it. That’s how wage garnishments work and that’s how you can stop them. Rebecca thanks very much for being here today.

Rebecca Martyn: My pleasure, thank you.

Doug Hoyes: Thank you. That was Let’s Get Started here on Debt Free in 30.

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People often refer to this action as having their wages “garnished”, but the correct legal term is a garnishee or garnishment.

How wage garnishments work

In order to garnishee your wages in the Province of Ontario, your creditor must first sue you in court to obtain a judgement order validating that the debt is indeed yours and how much is owed.  Once they receive a judgement against you, your creditor can then obtain a garnishment order which they will send to your employer.

Once they receive a notice of garnishment, your employer is obligated to withhold funds under the garnishee until either the amount is paid in full, the creditor rescinds the order or you file a bankruptcy or proposal to stop the wage garnishment.

Who can garnish your wages in Canada?

Your salary can be garnished for any unpaid debt including tax debts, student debt, outstanding bill payments and bank loans.

Depending on the type of debt, certain creditors do not have to go to court to garnish your wages:

• a Credit Union that you have given an assignment of wages to can simply provide a copy of your assignment to your payroll manager
• a payday loan company where you have signed a voluntary wage assignment can notify your employer without obtaining a judgement order first
• the Canada Revenue Agency can begin wage garnishing without obtaining a court order

What Ontario garnishment rules should I be aware of?

There are some specific Ontario garnishment rules that you should know if you receive notice that your wages will be garnisheed.

How much of my wages can be garnisheed?

According to the Ontario Wages Act, the maximum a creditor can garnishee is 20% of your pay and up to 50% for child support. The court will decide how much is taken from your paycheque based on your personal financial situation and other garnishments that may currently be in effect.

Can my employer fire me for a wage garnishment?

No, your employer cannot terminate you or demote you if they are given a garnishing order for your wages.

Can a collection agency garnish my wages?

Yes, a collection agency can sue you for an unpaid debt in Ontario in order to enforce collection of that debt. Like any creditor, they must first file a lawsuit to obtain a judgement order, then apply for a garnishment order.

Can payday loan company garnish my wages?

The answer is yes, however typically payday lenders instead rely on something called a voluntary payroll deduction form you signed when you borrowed the money. However a voluntary wage assignment is not the same as a legal garnishment order and here’s why:

If you signed a voluntary agreement to allow payroll deductions you have the right at any time to revoke your permission.  Further, you employer is not required to make the deductions (even if you want them too) if they don’t want to.

Can I stop a garnishment on my own?

The only way you can stop a wage garnishment on your own is to wait until your debt is paid off via the garnishee, or if your creditor agrees to stop it. However, if one of your creditors has gone through the effort of garnisheeing your wages, they are unlikely to halt the garnishment if you offer to repay your debt. This is because they usually only garnishee people who have a history of non-payment, or whom they believe will not pay for some reason.

Read Transcript

How does bankruptcy help stop a wage garnishment?

A consumer proposal or bankruptcy can stop a garnishment order, even if your wages are already being garnished. The only exception is an order for unpaid child or spousal support.

A bankruptcy or consumer proposal are both a legal process that provide for a stay of proceedings which stops all creditor actions, including a wage garnishment.

Remember, the longer you wait to deal with your wage garnishment, the more money you will lose from each of your paycheques.

If you work with a consumer proposal and bankruptcy professional like Hoyes, Michalos & Associates, we can often have a court order sent to your employer to stop wage garnishment within a few hours.

If you’ve found yourself threatened with a wage garnishment, or are already being garnisheed, call or email us immediately to start talking about your options.

To stop a garnishment now, eliminate debt and get creditor protection contact us to book a free, no-obligation debt consultation.

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At Hoyes, Michalos & Associates Inc., if you file a consumer proposal with us at 9:00 am, by noon that same day we can usually have a court order faxed to your employer, stopping the wage garnishment.

That’s right: in most cases we can notify your employer to stop a wage garnishment within a matter of hours after you have filed a consumer proposal.

The most common exception would be wages garnished for child support or spousal support, which cannot be stopped by the filing of a consumer proposal.

Who can be Prevented from Garnishing your Wages in Ontario with a Consumer Proposal?

A consumer proposal will stop garnishments obtained by:

• Banks;
• Credit card companies;
• Canada Revenue Agency;
• Pay day loan companies;
• Credit unions; and
• Virtually all other types of creditors.

What’s the Catch?

The catch is that we can’t notify your employer to stop the wage garnishment until you have officially filed your consumer proposal. You must take action immediately.

Stopping your Ontario wage garnishment, can be accomplished within the next few days.

Contact us today for a free consultation about how we can stop the garnishment and help you eliminate debt so you can get relief.

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You can attempt to make a deal with the creditor. Here are two ways you can do this.

Approaching Creditors On Your Own

Call the creditor, or the creditor’s lawyer, and offer to make a settlement.

You could tell them that you agree to pay the balance owing, and you will provide them with post dated cheques to repay the debt.

It is possible that if you speak directly with the creditor, they may agree to alternate payment arrangements

However, in our experience, it is highly unlikely that a creditor will agree to stop a garnishment once a garnishee summons has been ordered. Here’s why:

You owe the creditor money. They tried to collect with phone calls, letters, and collection agents, and they were not successful. They then spent the money to go to court to get a garnishee summons. Now they are receiving money from your employer every time you get paid. Why would they cancel a sure thing (money from your employer) in exchange for possible payments from you, probably for a lesser amount than they are getting already?

Clearly, it is unlikely they will agree to that type of deal.

Making A Settlement Offer Through A Consumer Proposal

Trying to negotiate directly with the creditor is worth a try, but if it doesn’t work your next option would be to consider a consumer proposal.

A consumer proposal is a formal debt settlement process under the Bankruptcy and Insolvency Act which means it provides you with the benefit of a stay of proceedings that stops most garnishments.

There are several benefits of dealing with a garnishment through a consumer proposal including:

• The wage garnishment can be stopped immediately. Once you file your employer will be notified right away to stop taking money from your pay.
• You can make a settlement to deal with the debts subject to the garnishment.
• You will also deal with other outstanding debts you may have, giving you a fresh financial start.
• A consumer proposal allows you to keep any assets you own including a home.

If you are threatened with a wage garnishment, or are currently being garnisheed, we recommend that you contact us today to review your options.

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A voluntary wage assignment is an agreement between a debtor and a creditor which allows an amount to be deducted from the borrower’s wages to repay a debt. When a loan is in default, a signed wage assignment form is sent to the borrower’s employer requesting the company begin withholding an agreed amount from their wages and remit this amount to the creditor.

I am often asked if it is possible to stop a voluntary wage assignment without declaring personal bankruptcy. Here are the facts:

1. In order to garnishee your wages in Ontario, a creditor must take you to court and sue you, and then obtain a Garnishment Order from the court.
2. The only exceptions are a Credit Union to whom you have given an assignment of wages, or Canada Revenue Agency.
3. In Ontario, Section 7 of the Ontario Wages Act specifically prohibits the assignment of wages to secure payment of a debt except in the case of a Credit Union.
4. If any other creditor has not taken you to court, and has not obtained a Garnishment Order, the only way that the voluntary wage assignment can be enforced is if you consent to the employer garnisheeing your wages.

What that means is that only a Credit Union is legally able to enforce a wage assignment agreement in Ontario. You can ‘un’-volunteer yourself from a voluntary wage assignment with a payday loan company or any creditor other than a Credit Union.

While generally, you can ask your employer to stop a voluntary wage assignment, the wage assignment may be a symptom of a greater financial problem and if you have received a legal garnishment order, there are options to stop a wage garnishment.

Can payday loan companies garnish your wages?

Payday loan companies often ask you to sign a voluntary wage assignment as part of the loan process. However these voluntary assignments are unenforceable.  Even though you have signed the voluntary wage assignment form, the form is not legally binding in Ontario; you can instruct your employer to not enforce it, and your employer is required to do as you ask.

Payday loan companies can, however, still go to court if they wish and obtain a legal garnishment order. If they, or any creditor, has obtained a court order granting them permission to garnish your wages, then your employer is required to comply.

If you are having problems meeting your financial obligations, please contact us to arrange a no charge consultation with one of our professionals to talk about your debt relief options.

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