If you have stopped paying your creditors, they can apply to the court to obtain something called a judgment order against you, which could lead to a garnishment. This is a legal process whereby a creditor requires a third party (i.e. your employer or bank) to turn over to the creditor a portion of your wages or funds in your bank account. This is called wage garnishment.
How much of your wages can be garnished in Ontario?
In Ontario, the maximum amount that your wages can be garnished by creditors is 50% of your gross pay (before deductions), according to the Ontario Wages Act.
Commercial debts (bank loans, credit cards, etc.) can only garnish a maximum of 20% of your wages.
If you owe arrears to the Family Responsibility Office (the government body responsible for helping individuals collect child support payments), they can garnish up to 50% of your wages, and there is no way of stopping them.
Is a court order needed to garnish wages?
There are two situations in which a court order is not required for a creditor to Garnish your wages:
- If you signed an assignment of your wages to a Credit Union for a loan you obtained from them.
- If you owe Canada Revenue Agency.
Additionally, the following types of income cannot be garnished:
- Employment insurance
- Social assistance (Ontario Works)
Although these funds cannot be taken via garnishment, once they are deposited into a bank account, the account could be frozen or the funds could be garnished from the account.
How to stop your wages from being garnished
The only way to stop your wages from being garnished is to file a consumer proposal or personal bankruptcy with a Licensed Insolvency Trustee. This will stop any garnishee order dead in its tracks, regardless of whatever stage it’s at in the legal process. You will be free from this garnishment immediately thanks to a federal law called a Stay of Proceedings.
A Stay of Proceedings essentially means that unsecured creditors are not allowed to proceed with any lawsuits or wage garnishment against someone who has declared bankruptcy. As a result of not being able to pursue you through the judicial system, in almost all cases creditors will stop contacting you altogether.
If you have creditors threatening you with legal action or if you have a garnishment on your wages, making it hard to pay your other bills, please contact us for professional help and advice. We can stop the garnishment immediately.
How much of your wages can Canada Revenue Agency (CRA) garnish?
When you owe someone money, it is possible that they may be able to garnish your wages if they get permission to do so from the courts. The CRA however, is unlike a traditional person that you owe money to because they do not need to get a judgment to garnish your wages.
With any other creditor, they will first need to get a court order and inform your employer, who will then forward a portion of your wages to the creditor to pay off your debts.
However, if that debt is to the CRA, they can garnish your wages without notice to you and without a court order. This means you may just receive a smaller than usual paycheck one day without knowing why.
When you are an employee working for a company and on the payroll (T4), the CRA can garnish up to 50% of your wages at the source. This means that the money will be taken right off your paycheck and forwarded to the person you owe; the remainder will come to you.
If you are self-employed, a contract worker, a pensioner, or receive income from an alternate source, the CRA can garnish up to 100% of your income straight from the source.
Once you file a consumer proposal or personal bankruptcy the CRA has no right to continue to garnish your wages and the Stay of Proceedings will immediately take effect, ultimately ending any sort of garnishment that may be in place.
Remember, any money garnished before you file for bankruptcy or a consumer proposal is lost, so the sooner you file, the less money will be lost going forward.