Despite all attempts to vet a borrower and urge him or her to repay a debt, creditors will sometimes be unable to collect on an outstanding loan. If the loan is uncollateralized – that is, it was not secured with a car, house, or other expensive item that the creditor has rights to if the loan is not repaid I full – it can be difficult to find another asset of the debtor’s to secure in lieu of repayment. When all other attempts fail, wage garnishment (also known as attachment of debt) may sometimes be employed to recover the deficient amount.
Wage garnishment is only used when the state determines that the debtor has the ability to pay back some of the debt, even though he or she has not done so. Sometimes this is because the debtor simply has neglected to make payments, spending the money on other things, and sometimes this is because the debtor truly believes she cannot spare enough to make the payments. Since nearly everyone must have a bank account and some sort of income-earning job, wage garnishment is used to allow the creditor to recover the debt without giving the debtor the choice of whether to make payments or not.
The creditor, or “garnishor” once the debt attachment process has begun, effectively becomes entitled to debts normally owned to the debtor by a third party. This third party is known as the “garnishee,” and in most cases is the debtor’s employer. However, wage garnishment is not restricted to employer relationships, and any debt can be theoretically used for an attachment process, including alimony and child support payments. Likewise, wages can be garnished to pay such familiar obligations.
It is worth noting that since money deposited in a bank is technically money owed by the bank to the customer, wage garnishment can be employed on any amounts in bank accounts. If the debtor is an independent contractor, garnishment orders can be served to every client. This can be particularly embarrassing or troublesome since clients may rescind their orders to the contractor upon receiving the garnishment order.
In nearly all cases, a garnishor must start a court order before the attachment process can begin. There are only two exceptions to this rule: a labor union may receive part of a worker’s wages if he has handed in an assignment of wage order to the union, and the Canada Revenue Agency can intercept wages on its own authority if a specific amount is owned by the debtor.
Otherwise, a creditor must obtain two rulings in its favor to begin the process of debt attachment. First, it must file a suit against the debtor and receive a judgment in the exact amount owed. If the final amount owed is not known with certainty, they will not receive this judgment until it can be verified. For example, a claim may be issued against a debtor for damages from negligence or personal injury before the exact amount of these damages is decided. Only when the amount is finalized can a garnishment order be considered.
Once the judgment is made in the creditor’s favor and the exact amount owed is known it can petition the court for an order to garnish the debtor’s wages. This garnishment order is only good for one payday; it must be renewed every week for as long as it takes to repay the debt in full. For this reason, wage garnishment is an expensive and time-consuming process for the creditor, making it a path of last resort usually only pursued in cases of substantial debts. Two exceptions to this rule exist: familial payments can be continually claimed via the Family Maintenance Enforcement Program, and the Canada Revenue Agency can issue a special Requirement to Pay order to a bank or employer that remains valid for 90 days at a time.
The amount that can be garnished per paycheck is limited to 30% of that period’s wages. The remaining 70% is protected and must be paid to the employee as normal. This figure is reduced to only 50% of wages protected if the debtor owes alimony or child support payments to the debtor who won the court case.
This money is not paid from the garnishee directly to the creditor: instead, all payments are made to the court, and the garnishee is responsible for making these payments. If an error results in wages that should be garnished being paid to the debtor, the garnishee will still have to pay that amount to the court, usually forgoing the amount accidentally remitted to the employee.
Sometimes a garnish order can be issued before a judgment is made against the creditor, usually in cases where the permanence of the debtor’s assets is in question. While the wage garnishment process begins at this point, the creditor receives none of the money until a final judgment is made against the debtor. If the debtor successfully defends himself in court, or proves that the amount owed is less than the creditor’s claim, attached wages will be returned.
If the debtor can prove substantial hardship will be incurred by the wage garnishment, he can petition the court for a reduction in the normal 30% or 50% amount withheld from each paycheck. Depending on the situation, the court may also allow payment by installments, or release the garnishment altogether. These efforts will usually be countered by the creditor seeking to increase the amount again. If monthly installment payments are allowed, the creditor will have special rights to inquire as to the debtor’s financial situation. It is worth noting that special protections exist where an employee cannot be punished by an employer simply because the employer received a garnishment order.
If a garnishee receives an order from the court but believes he or she does not owe the debtor any debts to be garnished, a Dispute Note can be submitted to the court registry. Dispute notes are considered on a case-by-case basis depending on the circumstances. Usually the creditor will consider the matter, and a judge is only involved if the creditor disagrees with the garnishee.
Common law states that any wages payable by the Crown are not subject to garnishment. This rule would prevent standard wages from being garnished from a large swath of Canadian government employees, including federal public servants, Members of Parliament, the Royal Canadian Mounted Police, and many others. However, the Garnishment, Attachment, and Pension Diversion Act explicitly challenged this common law position, permitting these federal salaries to be used for attachment orders.