If you’ve defaulted on your credit accounts and have had your debt sent to collections, you could face a number of severe consequences, including wage garnishment. When money is deducted straight from your paycheque, it can feel like a financial ambush. But while wage garnishment may be a legal way for debt collectors to recover outstanding debts, it comes with strict rules and protections. Understanding how wage garnishment in Canada works is key to protecting your income.
Key Points:
- Wage garnishment is a legal process where part of your paycheque is withheld to cover unpaid debts.
- There are limits to how much collectors can garnish your wages, depending on the province you live in.
- Creditors can only garnish your wages through a court order, which means they have to go through legal channels to lawfully recoup unpaid debts.
What Is Wage Garnishment In Canada?
Wage garnishment allows your creditor to obtain a portion of your earnings directly from your paycheque, which is then used to pay back the debt you owe.
How Does Wage Garnishment Work In Canada?
In Canada, creditors must apply to the courts for a wage garnishment order. To obtain the right to garnish your wages, a creditor must first file a lawsuit and obtain a judgment (where the court agrees you owe money to the creditor). Once the creditor obtains a judgment, they can choose to seize your assets or garnish your wages.
Generally, they will first look for any assets they can seize for repayment. If you have no physical assets or your assets fall short of repaying your full amount owed, then wage garnishment is a common option for your creditors.
Who Can File For Wage Garnishment?
Most creditors can file for wage garnishments. This process requires creditors to file a lawsuit and obtain a judgment from the court. The money taken from your paycheque is not paid directly to the creditor, but to the court.
Your wages may be garnished if you owe money to the following institutions:
- Credit card companies
- Collection agencies
- Government agencies (student loans, for instance, or the Family Responsibility Office), the Canada Revenue Agency (CRA)
- Payday lenders
- Banks
- Private lenders
| Keep in mind: The CRA can garnish your wages without a garnishment order from the courts.Learn more: The CRA Collection Process vs. Bankruptcy |
How Much Of Your Wages Can Be Garnished?
If you’re employed, the amount creditors are allowed to garnish on your wages has a limit. Wage garnishment limits in Canada are fairly consistent, with some variation depending on the province you live in.
| BC | In British Columbia, the limit is 30% of wages. |
| Alberta | Provinces like Alberta are a little more nuanced. In Alberta, you retain the first $800 of your monthly net income. Creditors are then able to garnish a maximum of 50% of your monthly net income between that first $800 to $2400, and then 100% of anything above that. |
| Saskatchewan | In Saskatchewan, the creditor can garnish 100% of your income, so long as you’re left with $1,500 a month. If you have a dependant, add $300 per month per dependant. |
| Manitoba | Up to 30% of your wages may be garnished. |
| Ontario | In Ontario, creditors are allowed to garnish your wages up to 20%, with some exceptions. |
| Quebec | Corporate creditors are limited to garnishing no more than 30% of your gross wages. Additionally, you’re entitled to a weekly exemption of $30 for each dependent. |
| New Brunswick | There is no set amount for what is exempt in New Brunswick. The amount to be garnished is determined after assessing an individual’s needs. |
| Nova Scotia | Corporate creditors can garnish up to 15% of wages, unless a judge orders for more to be taken. |
| Newfoundland and Labrador | Newfoundland and Labrador has a wage garnishment exemption system based on your household situation: – Single with no dependents: $649 of income is protected from garnishment. – You support one or more dependents: $963 is exempt, plus $47 for each additional dependent. – You have a spouse or cohabiting partner: $1,019 is exempt. – You support both a spouse and one dependent: $1,059 is exempt, with an additional $47 for each extra dependent. |
| PEI | Wage garnishment exemptions are determined by the court, taking into account your financial circumstances and how many dependents you support. |
How Much Of Your Wages Can Be Garnished By The CRA?
The CRA can garnish a maximum of 50% of your earnings, and 100% of other earnings, including pensions and income through contractual work. Again, you can instruct your employer to garnish your wages without a court order by voluntarily signing a wage assignment. This applies across provinces.
How Much Of Your Wages Can Be Garnished By Creditors, Banks and Commercial Creditors?
For creditors and commercial creditors (for debts like credit cards or personal loans), they can request to garnish up to 20% of your wages, and a maximum of 50% of your child support payments. The actual amount will depend on your individual circumstances and financial standing, as decided by the courts.
Wage Garnishment When Self-Employed
Wage garnishment works a little differently if you’re self-employed. The money you earn while self-employed isn’t classified as wages, so a creditor could technically garnish up to 100% of your earnings.
However, this is unlikely if the creditor wants to sustain payment. Moreover, as a self-employed individual, the creditor would serve the garnishment order to anyone who owes you your earnings (like a client). However, such orders are only valid for only a short period of time.
What Happens When A Garnishment Order Arrives?
The process of wage garnishment typically follows these steps:
Step 1: Creditor Obtains A Court Judgment
Before garnishment begins, most creditors (except the CRA) must first sue you and obtain a court judgment confirming that you owe the debt.
Step 2: Garnishment Order Is Issued
Once the judgment is granted, the creditor applies for a garnishment order. This legal document authorizes the seizure of a portion of your wages.
Step 3: Order Is Served To Your Employer
The garnishment order is sent to your employer (or clients if you’re self-employed). Your employer is legally required to comply and begin withholding the specified amount from your paycheque.
Step 4: Employer Withholds Wages
Your employer deducts the garnished amount from your gross or net wages, depending on provincial rules. This deduction continues with each pay period until the debt is paid or the order is lifted.
Step 5: Funds Are Sent To The Creditor
The withheld wages are forwarded to the creditor or their legal representative.
Step 6: You Receive a Notification
You’ll be notified of the garnishment, which will include details about the debt, the amount being garnished, and your rights. You can dispute the garnishment if you believe it’s incorrect or unfair. You can also negotiate a payment plan or file a consumer proposal or bankruptcy to stop the garnishment.
Step 7: Garnishment Ends When Debt Is Resolved
The garnishment continues until the full debt is paid, a settlement is reached, or you take legal action to stop it. Filing a consumer proposal or bankruptcy immediately stops most garnishments.
How To Stop Wage Garnishment In Canada
Dealing with wage garnishment can be tricky and disadvantageous when dealing with debt. Fortunately, there are a few ways to stop wage garnishment:
- Pay Off Your Debt: Although difficult, if you’re able to pay off your debts in its entirety, your lenders will stop garnishing your wages as there’s nothing left for creditors to collect.
- Negotiate With Your Creditor/Collection Agency: If possible, you should contact your creditors directly about the wage garnishment order. Depending on your situation, creditors may be open to negotiating other repayment methods or terms.
- File For A Consumer Proposal: A consumer proposal is an alternative method of debt relief to bankruptcy. Consumer proposals allow you to develop a plan with a Licensed Insolvency Trustee to repay your debts to your creditors. This comes with a stay of proceedings, which stops further legal action from your creditors, including wage garnishment.
- File For Bankruptcy: Bankruptcy is a legal process of eliminating a majority of your unsecured debts by selling your assets to a Licensed Insolvency Trustee. Similar to a consumer proposal, a stay of proceedings will be issued. This will protect you from any legal action your creditor may take, including wage garnishment. However, keep in mind that in some instances you may be required to repay a portion of your debt in order to qualify for bankruptcy.
Bottom Line
Wage garnishment in Canada can be stressful, but knowing your rights puts you back in control. Each province has its own rules and exemptions, so understanding the details is key, whether you’re facing wage garnishment or trying to avoid it.
