A payday loan company in Canada can only garnish your wages when granted a court order to do so. All creditors must file a lawsuit with the crown in order to obtain a wage garnishment order.
If a payday loan company or other creditor files a court order to garnish your wages you will also have the chance to appear in your local court to discuss settlement options. If you don't show up, the court is likely to grant the creditor a garnishment order.
Getting your wages garnished sucks, but it can definitely happen if you don't pay your creditors back.
With the right information you can learn how to responsibly borrow with a short-term loan in Canada and avoid these situations entirely. It's important to understand how it works so you can be prepared. Read on to learn more about the process and your rights as a debtor.
What Does it Mean to “Garnish Your Wages?”
A wage garnishment is a court order that forces your employer to send part of your income right to the creditor. So, if you were supposed to be paying a loan back at $300 a month and you stop, they could go to court ask for your employer to send as much as 50% of your gross monthly pay to them.
There is a strict legal process that must be followed in order for a creditor to garnish your wages:
- First, a creditor must obtain something called a judgment from the court; this is an official court acknowledgement that the creditor does have a claim against the debtor.
- Then, a seizure summons must be officially granted to the creditor. This provides the creditor with the ability to seize any assets.
- If there are no physical assets that a creditor can seize legally (like with an unsecured payday loan), then the creditor will give your employer a writ of seizure and start the process of garnishing your wages.
- A percentage of your income will now be given to your creditor directly until your debt has been paid off.
When Can Creditors Collect Owed Money?
A creditor can garnish your wages when you stop making payments towards your debt. This means that they have reason to believe you will not pay towards your debt any longer and must ask for a court to force your employer to pay them on your behalf.
What Are the Repercussions of Wage Garnishment?
Aside from the financial consequenses of having half your paycheck automatically taken to pay back your creditor, It can be embarassing to have your wages garnished. Since this process will involve your place of employment, it could hurt your reputation and your employers will know that you've been having difficulty paying off your debts.
No one wants such personal information to be available at their place of work. Know that your employer is not legally allowed to demote you or fire you simply because your wages are being garnished. If you quit your job in an attempt to stop the garnishing, you will then face the issue of unemployment and not having any income to keep afloat. The garnishment is likely to pick-up when you get a new job, thus following you to every new place of employment.
How To Stop Wage Garnishment In Canada
If you file for a consumer proposal or personal bankruptcy, your wage garnishment will be halted. A consumer proposal is a legal process administered by a Licensed Insolvency Trustee (LIT) - professionals who are authroized to discharge you from your debt. In process of making a consumer proposal, the LIT will help you develop a way of repaying your creditors. This could mean paying back only a percentage of what you owe, or extending the time you have to pay off your debts.
When you file for bankruptcy, you surrender everything you own to an LIT in exchange for the complete elimination of your debts. Visit the Government of Canada's Office of the Superintendent of Bankruptcy to learn more about the process.
A consumer proposal and/or bankruptcy should still be your last option. Taking out a personal loan and then filing for bankruptcy will demolish your credit score for 10 years and lower your chances of approval for future credit cards, bank accounts, phones, cars, mortgages, and any other form of credit.
How Can You Prevent Wage Garnishing?
Anyone can find themselves in a position where they may need to take out a personal loan. Emergencies happen to the best of us! However before taking out a payday loan, make sure that you have the capacity to make repayments on time and that you aren't borrowing more than you truly need. If you plan well in advance and have a good understanding of the loan agreement, then you should be fully capable of repaying a personal loan.
In this case, your best option will be to cut back on spending in order to repay your debt.
However, if you fall behind on repayment, you should talk to the lender right away about other payments options for the remaining amount. Many lenders will be open to helping you find a new repayment route; planning ahead benefits both parties and helps to retain a good relationship between the debtor and creditor.
The worst thing you can do is simply ignore your creditors requests to receive money owed. It can be an overwhelming situation, but If you ignore a creditor, they will become confident that you have no intention to repay your debt and they will be more inclined to pursue legal action.
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At iCASH, we only lend an amount you can comfortably repay based on your income and expenses. This helps our customers avoid situations where they can't repay their loan.
iCASH prides itself on friendly and reliable customer service, and is always willing to help our clients with their questions and concerns. In addition, our site contains a library of information where you can learn about how to achieve and sustain financial wellness, how online payday loans work, and how you can make a budget to suit your circumstances.