How quickly can a consumer proposal stop your garnishment?
The protection begins the exact moment your Licensed Insolvency Trustee files the paperwork. Once you file your consumer proposal, unsecured creditors cannot take money from your pay or bank account.
Source: Bankruptcy and Insolvency Act – Section 69.2
Your Licensed Insolvency Trustee submits the proposal to the Office of the Superintendent of Bankruptcy. They also notify your employer’s payroll department and the creditor who obtained the garnishment order. Once payroll receives this information, the wage garnishment will stop on the next pay run.
What a consumer proposal can and can’t stop
A stay of proceedings stops wage garnishments from unsecured creditors. That includes credit cards, bank loans and lines of credit, payday lenders, and collection agencies chasing those debts. It also stops the Canada Revenue Agency from using a Requirement to Pay to garnish your wages for income tax you owed before you filed.
Some garnishments don’t stop. Court-ordered child or spousal support keeps coming out of your pay, as does restitution ordered for a criminal offence. Secured debts, such as a mortgage or car loan, are also excluded from a consumer proposal.
| Garnishment for | Stopped by a consumer proposal? |
|---|---|
| Credit cards, bank loans, lines of credit | Yes |
| Payday loans | Yes |
| Collection agency debts | Yes |
| CRA income tax owed before filing | Yes |
| Child or spousal support | No |
| Court-ordered restitution | No |
What happens to your pay after a wage garnishment stops?
Once the wage garnishment stops, you receive your full pay again. Instead of deductions from each paycheque, you make one manageable monthly payment toward your consumer proposal.
The debt is then settled over the life of the proposal, up to five years, and whatever’s left at the end is forgiven.
Bear in mind that if you fall three months behind on your consumer proposal payments, the proposal is annulled, the stay ends, and a creditor can restart the garnishment. So it’s crucial to make payments on time.
Frequently asked questions
How much of my pay can a creditor garnish in Ontario?
In Ontario, ordinary creditors can garnish up to 20% of your wages, so 80% is protected. For a support order, the ceiling is higher, up to 50%, but a judge can adjust these amounts.
Source: Ontario Wages Act – Section 7
Can the CRA garnish 100% of my wages?
The CRA cannot garnish 100% of wages from a regular paycheque. However, for self-employed contractors, the CRA can demand the entire amount owed. Filing a consumer proposal stops CRA garnishment for tax debt you owed before you filed.
Source: Canada Revenue Agency – Garnishing your income and accounts
Is a consumer proposal or bankruptcy faster at stopping a garnishment?
Both a consumer proposal and bankruptcy stop a garnishment immediately upon filing, as both trigger the same stay of proceedings.
Does a wage garnishment stop before or after I file a consumer proposal?
A wage garnishment stops after your Licensed Insolvency Trustee files a consumer proposal, as the stay of proceedings begins at that time.
Can a wage garnishment start again during my consumer proposal?
A wage garnishment can start again if the consumer proposal is annulled. If you miss three months of payments, the creditor protection ends, and a creditor can take you back to court. So it’s important to make payments on time.
Will a consumer proposal stop a wage garnishment for a payday loan?
Yes, a consumer proposal will stop wage garnishment for a payday loan. Since a payday loan is considered unsecured debt, the proposal’s stay of proceedings applies just like it does for credit cards or bank loans, and the outstanding balance is included in your proposal.
Where to start if your wages are being garnished
The sooner you file, the sooner the deductions stop. If your wages are being garnished, talk to a Licensed Insolvency Trustee about whether a consumer proposal would help you. The first consultation is free.
