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What to do if you’re facing wage garnishment

Many are struggling with high inflation and high housing costs. Some are struggling so much they’re facing wage garnishment. These tough times make it more important than ever to manage your finances wisely so you can avoid the same fate.

What is wage garnishment?

Wage garnishment is when a creditor takes legal action to retrieve the money they’re owed. This legal action results in an employer being required to submit a portion of an employee’s paycheck to the creditor as payment.

Who can garnish your wages?

Anyone you owe money to can garnish your wages. This includes credit card companies, collection agencies, payday loan lenders, and the government. The Canada Revenue Agency (CRA) can garnish your wages if you owe taxes, collected too much EI, haven’t paid child support, or haven’t paid your student loans.

How does garnishment work?

Wage garnishing usually only happens if other methods haven’t worked. For example, if creditor phone calls and letters are ignored. This being the case the creditor can start legal action through the court.

The government has a lot of power and can garnish wages right away if you owe them money. With other creditors, wage garnishing doesn’t happen so fast. For starters, the creditor will need to get two court orders. The first one is called a “payment order.” It confirms that you owe the creditor money. The second court order is a “garnishing order.” It orders your employer to send part of your paycheque to the court, instead of to you.

In some cases, a creditor may apply for a payment hearing. This means that you and your creditor go to court. You will each have a chance to speak. This helps the court to decide on the payment terms.

What is exempt from wage garnishment?

Creditors can garnish wages, but there are other types of pay that are exempt. Creditors cannot garnishee employment insurance, social assistance, or pensions.

Although a creditor isn’t allowed to garnish these funds, they have other ways. When money is deposited into a bank account, creditors can freeze the account and garnish the funds through your bank.

A creditor cannot garnish the “non-salary” items on your pay cheque. Unfortunately, you still pay these deductions:

  • Canada Pension Plan and Quebec Pension Plan contributions
  • Employment Insurance deductions
  • Income Tax deductions
  • Union membership dues

Wage garnishing if you’re self-employed

Even if you’re your own boss, creditors can garnish your wages. The court would ask your clients (instead of an employer) for a portion of your pay. There is good news and bad news about this. The bad news is, that creditors can garnish 100% of your self-employment wages. The good news is, typically they don’t. It’s more common for creditors to garnish part of your earnings.

Wage garnishing if you’re unemployed

Since unemployed people don’t earn a salary, there are no wages to garnish. However, creditors can garnish your termination or severance package from your former employer.

How much can they garnish?

Creditors can garnish 20% to 50% of your paycheque. Wage garnishment in Canada varies by province or territory. Ask a Licenced Insolvency Trustee (LIT) how much creditors can garnish from your pay.

What is the employer’s role in this?

If your employer receives a court order for wage garnishment, they must comply. It’s the law.
Employers can’t penalize, fire or suspend someone just because a creditor is garnishing their wages.

How to stop wage garnishments

Nobody wants to work hard and then have a collector take half of their paycheque. If your debt has reached this stage, help is available. Find out what your options are by talking to a Licensed Insolvency Trustee. Depending on your situation, you might consider:

Setting up repayment plans with your creditors

With a Debt Management Program (DMP), all eligible debts are combined into one. This makes keeping track of and paying debts much easier.

DMP will appear on credit reports for two years after the program is finished. Without finishing the program, it stays on credit reports for six years.

Many credit counselling agencies offer training and workshops. It’s a great resource to learn from an expert how to manage personal finances. The bonus in this scenario is, that you don’t just pay off your debt, you also learn to have a healthier financial future.

Filing a consumer proposal

If your LIT thinks it’s appropriate, they will prepare a proposal for your creditors. This proposal could offer to pay off some of the outstanding debt. It can also mean gaining more time to pay it off. The consumer proposal can’t take more than five years. With this option, payments are no longer sent to creditors. Payments go to the LIT, and the LIT pays the creditors.

Declaring bankruptcy

This is a legal process that eliminates most of your unpaid debts. The LIT takes full control of all assets and liabilities (what’s owned and what’s owed). A LIT will take care of dealing with creditors and settling debts.

A debtor filing for bankruptcy has certain duties. They must give up certain assets, attend two credit counselling sessions and make the payments that the LIT has arranged.


A consumer proposal and bankruptcy are extreme options. Although they provide debt relief, they should be a last resort. Both of these options affect credit scores.

The best thing to do with debt is to pay it off in full as soon as you can. When that is not possible, get help from an expert. Reach out today and ask for a free consultation.

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