No, you cannot go to jail for not paying your debts

One of Janice and Larry’s creditor’s has obtained a judgment against them. This couple have heard many collection stories and Janice is afraid the judgment creditor is going to garnish their wages, she thinks they may lose their jobs, or worse, that they might be put in jail. They are both relieved to hear there is no such thing as debtor prison.

Enforcement of a Judgment

If the debtor either cannot or will not pay the debt, the creditor has several possible courses of action to attempt to enforce the judgment. The creditor may choose either to garnish the debtor’s wages or bank account or to seize some of the debtor’s goods under an execution order.

Garnishments

Wages or bank accounts may be garnished to satisfy a judgment debt. A wage garnishment is a court order that instructs an employer to pay into the courts trust account a predetermined percentage of the debtor’s wages. If a debtor has more than one garnishment order outstanding, the court will send them out one at a time. The debtor will not be taken by surprise, but will receive a statement from the court that the creditor has requested a garnishment with time to respond to the court. The debtor’s fate however, is not sealed in stone. Debtors can plead for a reduction in the amount deducted from his or her wages and can stop the garnishment if it can be shown that steps are being taken to handle the debt problems. Sometimes, when more than one creditor has obtained a judgment against a debtor, the court may divide the funds collected by each garnishment order among the creditors, rather handle the claims sequentially.

Garnishment is governed by a number of regulations, including some that exempt certain persons, some that exempt a portion of wages, and some that protect employees from being dismissed when their wages have been garnished.

Contrary to what some debt collectors have told my clients, income from income assistance or social security programs, employment insurance, or old age security is exempt from garnishment. However, upon deposit into a bank account those funds could be seized. Provincial laws specify what proportion of wages may be garnisheed: 70 to 80% of gross wages may be exempt and that proportion can be increased if the debtor can persuade the court of need. An employer that receives a garnishment order may wish to dismiss the employee but provincial laws are in place to attempt to prevent this.

Homeowners can receive a garnishment order with regard to temporarily employed trades people who have outstanding judgment debts.

A bank account garnishment can be taken to obtain money from a debtor’s account to satisfy a judgement debt. As with a wage garnishment, the process for doing this is initiated through the court, one difference is that a bank garnishment order may take 100% of an account balance to satisfy a debt. Bank account garnishments are sometimes used to collect debts from persons that have no other means of paying the debt.

Demand on third party

A demand on a third party may be issued by the federal government for debts incurred against the federal government (such as income tax arrears and employment insurance benefits overpayments). The demand on a third party is like a garnishment in many ways, but it does not require a court order and it allows attachment (seizure) of a larger share of income. In the case of a self-employed individual, a demand on a third party may be issued against the person’s bank account.

Family court garnishment

Whenever payments on a maintenance order are not kept up to date, the family court can issue an attachment on wages, or family court garnishment, that has a continuing effect, similar to a demand on a third party. Again, these are circumstances under which the percentage of the person’s wages that can be attached may exceed the limits set under provincial wage legislation.

It is possible to have a garnishment order for 50% of gross wages minus CPP, EI, union dues, and taxes. To apply for relief, the person must file a dispute with courts and await a hearing. At the hearing, the judge decides whether or not to reduce the percentage garnisheed.

Execution order

A creditor who has obtained a judgement has the right to seize and sell some of the debtor’s property to satisfy the debt. This process is called executing against the debtor’s property. The goods seized must be completely owned by the debtor, without liens or mortgages attached to them. Each province’s Execution Act exempts certain possessions, such as household furnishings, from seize.

Janice and Larry are relieved to know what their rights are regarding the judgment and together we create a financial plan to pay the judgment off. They do not end up in debtor prison.

This column is not legal advice. If you are being sued or garnisheed speak to a professional today. Do not wait!