It’s absolutely possible for a creditor to pursue repayment through wage garnishment. Unless you have payments outstanding to a government agency, department of government, or court ordered child/spousal support, your creditor will need file a lawsuit to have access to your wages.
When Creditors Usually Sue
When an obligation is in arrears, the first six months usually consists of demands for repayment. During this time, either the original creditor will pursue you, or a third party will take over the process. If you haven’t successfully repaid the debt in the period, a lawsuit may follow.
Outstanding unsecured debts aren’t usually taken to court since filing lawsuits costs time and money. Relatively small amounts aren’t worth the effort to a business, although some collection firms are notoriously eager to sue their debtors. There’s also a statute of limitations of two years for basic contract debt, and once you’re outside that time frame, the creditor is unlikely to sue. Regardless, you are still obligated to repay money owed.
How a Lawsuit Proceeds
The creditor will initiate a lawsuit by obtaining a garnishment document from the court, and as with civil suits, you will be officially served. At this time it’s possible to file a defence and if successful, a trial date is set; however a failed defence leads to a default judgment wherein a payment schedule is established. The trial itself results in either a successful judgment, giving the creditor the ability to recover money from your assets, or no judgment awarded, and the creditor resumes regular collection from you.
How Much Will Be Left after Garnishment?
Monthly exemptions for salaried employees exist so you can continue to pay your bills. In Ontario, 80% of your net wages are exempt from deduction if your creditor is successful in suing you. For non-salaried workers, such as those who are self-employed or independently contracted, there is no exemption. All of your income from wages are eligible for garnishment.
Exemptions relating to child support and spousal support is set at 50% of wages, leaving you with significantly less for personal expenses.