Wage garnishment is the process of taking money directly from a debtor’s paycheque, for direct payment to creditors. The courts may order this measure if you have significant debts or financial obligations and there is reason to believe you may not make repayments on time.
Why garnish wages?
Typically, creditors will only apply to the courts for wage garnishment if attempts to reach an agreement with you, as the debtor, have failed or you have not made any repayments for a significant period of time.
In those circumstances, a creditor might go to court and seek a judgment against you for unpaid debts. If they are successful, they can then apply for a writ of seizure. That would allow them to seize assets from you in repayment of your debts – either physical assets such as a car or financial assets such as your monthly salary. In theory, once the process of garnishing your wages has begun, it will continue until:
- Your debts have been repaid, or
- You and the creditor make an alternative arrangement
A court order is only required by a private creditor or debt collection agency. Representatives of the government of Canada like the Canada Revenue Agency and Alberta Child Support Services do not require legal permission to garnish wages for child support, back tax, student loans and similar debts. Credit unions are also exempt.
Garnishment laws in Alberta
Provincial laws concerning wage garnishment vary. In Alberta, the first $800 of your monthly salary is exempt from garnishment. Creditors can take up to 50% of amounts between $800 and $2400, and 100% of amounts above $2400. There is no maximum garnishment amount – but the process will, of course, end when the debt is repaid.
If you have children or other dependents, the above wage brackets are increased by $200 for each. Therefore, if you have one child, the $1000 of your monthly income will be exempt, and 50% garnishment applied to amounts between $1000 and $2600, with again, any salary above the latter available for 100% garnishment. The exemption bracket rises, of course, to $1200 if you have two children.
*Note that these exemptions do not apply to the Canada Revenue Agency (CRA).
If you are self-employed, the above exemptions do not apply and so, in theory, 100% of your earnings could be taken – but most creditors realize this would be unmanageable and so take a lower amount. Garnishment of self-employed people usually requires direct contact with their clients and other people or organizations who owe them money, but creditors will need special permission to request funds directly from them.
If you are unemployed, a creditor with a garnishing order may take payments directly from your bank account.
Many pensions however, are entirely exempt from garnishment.
Your rights as a debtor
Fortunately, if you are a debtor, you have legal rights and you can take proactive steps to avoid garnishment in the first place, or make alternative arrangements with your creditors.
Debts cannot be pursued or garnished if the last written acknowledgment of them is more than six years old.
You are also legally protected from retaliation by your employer if your employee wages are garnished. They cannot fire you or cut your hours.
Ways to escape garnishment
There are several practical steps you can take to stop wage garnishment, including:
Negotiate with your creditors
You may be able to negotiate an alternative debt payment plan that does not involve wage garnishment. Alternatively, a loan would provide access to funds that might allow you to pay your debtors and then repay the bank at a more favourable rate.
Consider a Consumer Proposal
Consumer Proposals are negotiated settlements with creditors that allow you to pay back a reduced, agreed amount for a set period of time. This can be a good option because the total amount repaid could be less than the amount owed, but creditors know they would likely receive even less if you declared Bankruptcy.
In Alberta, an individual debtor must owe less than $250,000 to be eligible for a Consumer Proposal.
Filing for Bankruptcy
Bankruptcy is a more stringent process but does have the advantage of freeing you from most unsecured debt. All collection practices are stopped immediately with what is called a ‘stay of proceedings’ upon filing. While your credit score will be affected by Bankruptcy, it can be rebuilt over time.
Assistance with wage garnishment in Alberta
If you were to file for Bankruptcy or a Consumer Proposal in any province in Canada, you will need the assistance of a Licensed Insolvency Trustee (LIT). LITs are federally-regulated and are the only professionals licensed to administer Consumer Proposals and Bankruptcies. They act as mediators between creditors and debtors and can also offer you general financial advice if you need guidance. Allan Marshall & Associates is a leading firm of LITs and financial advisors. You’ll find our Alberta offices in Calgary, Red Deer and Edmonton. If you are ready for a new financial future, contact us today and let us guide you to debt free living.