For the average person, a judgment or lawsuit is a scary thing. This is not just someone calling you for collection or sending you past due notices. Somebody you owe money to is using the legal system and the courts to collect money from you. You feel like you are at their mercy. Usually, as is the case with credit card bills, it’s not that you are saying you don’t owe the money, it’s just that you can’t repay it.
How a judgment or lawsuit works
There are three basic steps in the judgment process:
- It begins with a creditor or lawyer sending you a legal document called a statement of claim.
- If you ignored this notice and don’t defend the action, or you lose your defense in court, the judge will award a judgment to the plaintiff. This judgment means that the court has now confirmed that you owe the money, and this carries a lot more weight.
- The creditor can now take this piece of paper and try and collect from you. The have two options to enforce their judgment. If they know where you work, they can contact your employer and start a garnishment against your wages. And if they know where you do your banking, they can seize all the cash in your bank account to collect on judgment debts. A judgment creditor can also gain an execution order to seize and sell your assets.
A few other facts you should know about judgments and garnishments:
- you can’t go to jail for not paying your debts;
- certain income cannot be garnisheed including social assistance, employment insurance and both government and private pension;
- in Ontario, a creditor can only garnishee up to 20% of your wages (50% for garnishments issued by the family court);
- in contrast, a creditor can seize up to 100% of your bank account to enforce a judgment for outstanding debts.
Filing a consumer proposal or bankruptcy provides a stay of proceeding which stops all creditor actions for judgment debts including garnishments and can unfreeze a bank account.
Consumer proposal relieves judgment debt & garnishment: case study
This happened to Nancy (not her real name), a person who came to me in my North York office looking for help. Nancy is single, and she was employed in the IT field. She had a good job working in the computer industry, making a good living. She lived in a nice apartment, treated herself to regular vacations and shopped for nice things. She had never put much money away for a rainy day since she thought her job was rock solid. Besides, the banks and credit card companies kept throwing more money at her because of her income and she wasn’t having any difficulty making the payments.
Then the unthinkable happened. The company she worked for went bankrupt. All of sudden Nancy was out of a job, looking for work. She started her job search doing all the right things: networking, interviews, reaching out to friends, and more. She did this for weeks, then months, but with no luck.
In the meantime, Nancy cut out all her extravagances, but some things couldn’t be avoided. She had signed a lease with her landlord and was locked in for a year. Her car was only two years old and the financing on it ran for another three years. She had to eat. Her EI payments barely covered food and necessities. Fortunately for her, she still had room left on her line of credit and credit cards. But soon enough, even that cash ran out.
Eventually her creditors started calling. And then a lawyer letter arrived indicating that one of her creditors was suing her for unpaid credit card debts. Since she did owe the money, the court granted Nancy’s creditor a judgment against her.
Eventually Nancy was able to find a new job. She was covering her still pared down living expenses and had some money left over at the end of the month, but there were all these old debts to deal with. And that judgment.
One Friday morning, a payday no less, Nancy was informed by her new employer’s payroll manager that they had received a wage garnishment notice and it was effective immediately. Her bi-weekly pay that would be deposited into her account today would be reduced by roughly 30% of what she was expecting. She panicked. She couldn’t live this way. She needed help.
Nancy got on her computer looking for a way out. She found our website which explained to her what her options were in the face of a wage garnishment. She called us and booked an immediate appointment to review her options.
I met with Nancy that day after she got off work. We spent about 15 minutes going over her finances and budget. The bottom line was that she owed all her creditors $60,000, which included the judgment against her. Her budget had enough room in to offer her creditors $350 a month. The payment period would by 60 months, 5 years, for a total of $21,000, or about one third of what she owed. The most important thing was that her wage garnishment would stop immediately.
The next day, Nancy came back to my office to sign the paperwork for her consumer proposal. I filed it with the government and then sent a notice out to her payroll department to stop the wage garnishment. Nancy was relieved.
The offer to her creditors was ultimately accepted. The relief Nancy felt after filing her consumer proposal turned in to joy. She did it. She managed to get her financial life back on track and avoid filing for bankruptcy, a fate she really wanted to avoid. She knew that she was responsible for her debts. She really wanted to pay them back, but the wage garnishment was killing her. With our help, she was able to get that fresh start she was looking for.
I didn’t do for Nancy anything that we wouldn’t have done for the many other people that walk through our door. If you are facing a judgment or lawsuit for debts you cannot repay, we can help you too.