Routinely, our clients’ creditors have obtained judgments against them. A judgement is a ruling from a court that one party (debtor) owes another party (creditor) some money. Once a creditor has been granted a judgement, that judgment can be used as a tool to get some of the creditors money back from the debtor through things like a wage garnishment or seizing assets.
However, we have heard stories from clients, at times, that some collection agents have played up what a creditor can do to a debtor once a judgement is issued. Once debtors learn that the judgment creditor can garnish their wages, that become afraid they are also going lose their jobs, or even worse, be put in jail. They are always quite relieved when we tell them there is no such thing as debtor prison in Canada – however, garnishment is completely real, and its possible consequences are an important thing to be aware of.
Enforcement of a Judgment
If the debtor either cannot or will not pay the debt, the creditor has several possible courses of action to attempt to enforce the judgment. The creditor may choose to either garnish the debtor’s wages/bank account or to seize some of the debtor’s goods under an Execution Order.
Wages or bank accounts may be garnished to satisfy a judgment debt.
A wage garnishment is a court order that instructs an employer to pay to the court/creditor a percentage of the debtor’s wages. Usually, this amount is 30%. This type of garnishment must be renewed after each payment.
If a debtor has more than one garnishment order outstanding, the court will send them out one at a time. The debtor will not be taken by surprise but will receive a statement from the court saying that the creditor has requested a garnishment with time to respond to the court. The debtor’s fate, however, is not sealed in stone. Debtors can plead for a reduction in the amount deducted from his or her wages and can stop the garnishment if it can be shown that steps are being taken to handle the debt problems. Sometimes, when more than one creditor has obtained a judgment against a debtor, the court may divide the funds collected by each garnishment order among the creditors, rather then handling the claims sequentially.
The garnishment is governed by several regulations. Some of these provisions attempt to
exempt certain persons from being garnished
exempt a certain portion of wages, and
protect employees from being dismissed when their wages have been garnished.
Contrary to what some people have heard from debt collectors there are several types of income that are exempt from being garnished. These include:
income from income assistance or social security programs,
old age security, and CPP
However, once those funds are deposited into a bank account, they are now “cash” and thus could then be seized.
Provincial laws specify what proportion of wages may be garnisheed: 70 to 80% of gross wages may be exempt and that proportion can be increased if the debtor can persuade the court of need. An employer that receives a garnishment order may wish to dismiss the employee, but provincial laws are in place to attempt to prevent this.
Homeowners can also receive a garnishment order about temporarily employed trades people who have outstanding judgment debts against them. This would mean that the homeowner who has hired a plumber for example, would be held responsible for sending some of the plumber’s wages to the court/creditor.
Garnishment of Bank Accounts
A bank account garnishment can be used to seize a debtor’s account to satisfy a judgement debt. As with a wage garnishment, the process for doing this is initiated through the court. One difference is that a bank garnishment order may take 100% of an account balance to satisfy a debt. This can be especially shocking for someone who is relying on the funds in their account to pay their rent or buy food.
Banks also have the right to use “set off”. So the bank has the right to transfer money from one account (your savings) to pay off your credit card (Visa) that is in arrears. In these cases, the bank does not have to get a judgement first – they can merely just transfer between accounts once you have missed a payment. Once again, this can be pretty jarring to find one day that your account has been emptied of the rent money.
Demand on third party
A demand on a third party may be issued by the federal government for debts incurred against the federal government (such as income tax arrears and employment insurance benefits overpayments). The demand on a third party is like a garnishment in many ways, but it does not require a court order and it allows attachment (seizure) of a larger share of income. As mentioned, CRA has been known to garnish wages at 100%! – clearly as impractical as sending someone to debtor’s prison.
In the case of a self-employed individual, a demand on a third party may be issued against the person’s bank account. So CRA can also take 100% of what’s in your bank account.
Family court garnishment
Whenever payments on a maintenance order are not kept up to date, the family court can issue an attachment on wages. This family court garnishment has a continuing effect and thus can be ongoing from month to month and does not have to be renewed each paycheque which is required under a regular garnishment. In this way, family maintenance orders are similar to a demand on a third party (above). Again, these are circumstances under which the percentage of the person’s wages that can be attached may exceed the limits set under provincial wage legislation.
It is possible to have a garnishment order for 50% of gross wages minus CPP, EI, union dues, and taxes. To apply for relief, the person must file a dispute with courts and await a hearing. At the hearing, the judge decides whether or not to reduce the percentage garnisheed.
A creditor who has obtained a judgement has the right to seize and sell some of the debtor’s property to satisfy the debt. This process is called executing against the debtor’s property. The goods seized must be completely owned by the debtor, without liens or mortgages attached to them. Each province’s Execution Act exempts certain possessions, such as household furnishings, from seizure. In British Columbia, a debtor can protect various assets from seizure, including
$10,000 Tools of the Trade
$5,000 in equity in a vehicle
$12,000 equity in a principle residence
$4,000 in home furnishings and appliances
There is also provincial and federal legislation that protects RRSPs and medical equipment.
The good news is that if a debtor is burdened by debt, struggling with having wages garnished, or concerned about having their assets seized, filing a Consumer Proposal or personal bankruptcy will stop all creditor actions. This means that all garnishments and seizing of assets will immediately stop. A formal proceeding gives debtors the chance to make a fresh start and works so much better than debtor’s prison.
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