Some lenders require their borrowers to sign a form called a “Voluntary Wage Assignment” which allows the borrower’s wages to be garnisheed if they do not repay the loan as agreed. Payday loan companies and Credit Unions commonly ask borrowers to sign these types of forms. However not all wage assignment agreements are enforceable by law.
A voluntary wage assignment is an agreement between a debtor and a creditor which allows an amount to be deducted from the borrower’s wages to repay a debt. When a loan is in default, the form is typically sent to the borrower’s employer requesting the company begin withholding an agreed amount from their wages and remit this amount to the creditor.
I am often asked if it is possible to stop a voluntary wage assignment without declaring personal bankruptcy. Here are the facts:
- In order to garnishee your wages in Ontario, a creditor must take you to court and sue you, and then obtain a Garnishment Order from the court.
- The only exceptions are a Credit Union to whom you have given an assignment of wages, or Canada Revenue Agency.
- In Ontario, Section 7 of the Ontario Wages Act specifically prohibits the assignment of wages to secure payment of a debt except in the case of a Credit Union.
- If any other creditor has not taken you to court, and has not obtained a Garnishment Order, the only way that the voluntary wage assignment can be enforced is if you consent to the employer garnisheeing your wages.
What that means is that only a Credit Union is legally able to enforce a wage assignment agreement in Ontario. You can ‘un’-volunteer yourself from a voluntary wage assignment with a payday loan company or any creditor other than a Credit Union.
Can payday loan companies garnish your wages?
Payday loan companies often ask you to sign a voluntary wage assignment as part of the loan process. However these voluntary assignments are unenforceable. Even though you have signed the voluntary wage assignment form, the form is not legally binding in Ontario; you can instruct your employer to not enforce it, and your employer is required to do as you ask.
Payday loan companies can, however, still go to court if they wish and obtain a legal garnishment order. If they, or any creditor, has obtained a court order granting them permission to garnish your wages, then your employer is required to comply. In that case you still have options to stop a wage garnishment.
What to do
While generally, you can ask your employer to stop a voluntary wage assignment, the wage assignment may be a symptom of a greater financial problem.
If you are having problems meeting your financial obligations, please contact us to arrange a no charge consultation with one of our professionals.