Your debt might be too old to be sued
In some circumstances you might avoid being sued because your debt is too old. You might not be sued if you have an unsecured consumer debt and the limitation period in the province where you live has expired. An unsecured consumer debt is a debt (1) where your creditor has no collateral in the event you do not pay, and (2) your debt is not child support or spousal support nor is the debt owed to the government. The statute of limitations for simple contract debt is two years in Alberta, Saskatchewan, and Ontario, three years in Quebec, and six years in the rest of Canada.
If you live in British Columbia or Newfoundland and your debt is more than six years old then your debt is extinguished–it no longer exists and it would be improper for you to be sued. If you live anywhere in Canada other than British Columbia and Newfoundland and the statute of limitations has expired on your debt then it simply provides you with an affirmative defence. If you were to be sued after the expiry of a limitation period then it would be necessary for you to file a defence to a lawsuit brought by your creditor and to plead the expiry of your province’s statute of limitations as a full and complete defence. Creditors do not often sue debtors after the limitation period on an unsecured consumer debt has expired.
How can I avoid being sued?
If you have stopped making payments to your creditor then you may be sued. You have a number of options when it comes to avoid being sued:
- Do nothing and hope that you will not be sued
- Negotiate a settlement with your creditor or its representative
- Enter into a Debt Management Plan with a credit counselling agency
- Speak to a bankruptcy trustee and file for personal bankruptcy or make a consumer proposal
- Move to New Brunswick, a debtor’s haven, and dramatically reduce the odds of being sued
- Relocate outside Canada and dramatically reduce the odds of being sued
- Sell any real estate that you own in your own name at your earliest opportunity and reduce the odds that you might be sued
Can I go to jail for not paying my debts?
We do not have debtors prisons in Canada. Today people who owe money to their creditors do not go to jail. So can a collection agency take me to court? There is, one scenario, in which a debtor could go to jail. If your creditor sues you and subsequently obtains a judgment against you your creditor has the right to order you to appear for a judgment debtor’s examination. At this examination your creditor has the right to ask you questions about your financial situation including your assets, liabilities, income and employment situation. If you are served with a notice to attend a judgment debtors examination and you fail to show up then you will be in contempt of court after which a judge could order you to be put in jail.
When might a wage garnishment arise?
There are three distinct scenarios under which a wage garnishment might arise:
- Wage garnishment arising from a civil suit brought by a creditor against a debtor
- Wage garnishment arising from a court order for child support or spousal support
- Wage garnishment initiated by the Canada Revenue Agency
If I stop making payments to a creditor can my wages be garnisheed?
If you stop making payments to a creditor then you run the risk of being sued. If your creditor makes the decision to sue you it might outsource the work, using a law firm, a paralegal or a collection agency. Alternatively, your creditor might have one of its own employees arrange to sue you.
If you are sued then your creditor will have a document issued with the court initiating the lawsuit. This document will be served on you so that you become aware of the existence of your creditor’s lawsuit against you. You will have an opportunity to file a defence with the court to defend your creditor’s lawsuit. If you fail to defend the lawsuit then your creditor will obtain what is referred to as a default judgment against you. If you defend your creditor’s lawsuit then the lawsuit will proceed towards a future trial date, and on the date of your trial one of two results are available—your creditor will be successful and obtain a judgment against you or you will be successful in which case no judgment is awarded against you.
How can my creditor or collection agency recover monies from me by suing me?
If your creditor successfully sues you and obtains a judgment against you then the creditor will typically make some attempt to recover monies from you. Once your creditor has obtained a judgment against you it is known as a judgment creditor and you are referred to as a judgment debtor. There are a number of ways a judgment creditor can potentially recover monies from a judgment debtor.
- Judgment creditor can ask the judgment debtor to make a payment or payments to the judgment creditor on a voluntary basis
- Wage garnishment
- Garnishment of a bank account
- Placing a lien against the judgment debtor’s real property
How does a wage garnishment work?
Except for those situations involving the Canada Revenue Agency or court-awarded support, in order for a creditor to obtain a wage garnishment against a debtor the creditor must first obtain a judgment against the debtor. Secondly, the creditor must identify the name and contact information for the debtor’s employer. Finally, the judgment creditor must complete some forms and file it with the appropriate court. Once this is done the court will contact the judgment debtor’s employer demanding that a certain portion of the judgment debtor’s future wages be paid to the court, on behalf of the judgment creditor, instead of to the judgment debtor.
How much will be deducted from my wages if I am sued by a creditor?
Each province places a ceiling on the amount of money that a judgment creditor can have taken from his wages under a wage garnishment. The following table sets out these limits:
Monthly Exemption From Wage Garnishments in Favour of Creditors
By Province (net wages)
Monthly Exemption from Wage Garnishment
|Alberta||Between $800 and $2,400 for those with no dependents, the size of the exemption increasing on a sliding scale as the size of the enforcement debtor’s monthly income increases. Furthermore, this amount increases by $200 for each dependent a person has.|
|British Columbia||70 percent of a person’s wages are exempt, except that the exempt amount cannot be less than (i) $100 for a single employee with no dependents and (ii) $200 for a person with one or more dependents|
|Manitoba||70 percent of a person’s wages are exempt, except that the exempt amount cannot be less than (i) $250 for an employee with no dependents, and (ii) $350 for an employee with dependents|
|New Brunswick||Wage garnishments are not permitted in the province|
|Nfld. & Labrador||-Employees with no spouse, no co-habiting partner, and no dependents: $649
-Employees supporting one or more dependents, $963, plus $47 for each additional dependent
-Employees supporting a spouse or co-habiting partner: $1,019
-Employees supporting a spouse or co-habiting partner and one dependent: $1,059, plus $47 for each additional dependent
|Nova Scotia||85 percent of gross wages are exempt, except that the net wage employee receives cannot be less than $450 per week for employees supporting a family and $330 per week for other employees|
|Ontario||80 percent of a person’s wages are exempt|
|PEI||Exemption determined by the court based on employee’s financial needs and number of dependents.|
|Quebec||70 percent of wages in excess of $180 per week, plus $30 for each dependent in excess of two, for employees who are supporting a spouse, have a dependent child or are the main support of a relative. In all other cases, 70 percent of wages exceeding $120/week are exempt|
|Saskatchewan||$500, plus $100 for each dependent|
|Northwest Territories||70 percent of an employee’s net wages exempt, except that the amount exempt must be a minimum of $1,000, plus $250 for each dependent|
|Nunavut||Exemption is (i) $1,500, plus $300 month per dependent, or (ii) 70 percent of an employee’s net pay, up to $3,500/month, plus $300 per month for each dependent, whichever is higher|
|Yukon||70% of net wages are exempt, except that the amount exempted shall be not less than $600 per month for a single employee. For employee supporting one to three dependents, monthly exemption must not be less than $1,000. If employee is supporting at least four dependents, minimum monthly exemption is to increase by $150/month for fourth and each additional dependent|
Only salaried employees are entitled to provincial protection from wage garnishments
The protections that provinces have limiting the amount of monies that a judgment debtor has deducted under a wage garnishment only apply to salaried employees. They do not apply to those who are self employed or those whose employment status could be described as an independent contractor. For example, if you are general contractor and you do some renovations for a homeowner and the homeowner receives a garnishment notice then the homeowner is required to pay one hundred percent of any monies owing to you into court.
How much of my wages can be garnisheed under for spousal support or child support?
Monthly Exemption from Wage Garnishments for
Child Support and Spousal Support by Province
Monthly Exemption for Child Support and Spousal Support
|Alberta||For court orders after May 1, 2005, 60 percent of an employee’s gross wages are exempt. If the employee’s gross annual wages are less than $15,000 employers may contact the government to increase the exemption to 80 percent of an employee’s gross wages.|
|British Columbia||Amount of the exemption will depend upon whether or not the court order is tax deductible, type of payment to the employee, and the frequency of pay periods.|
|Manitoba||$250 per month|
|New Brunswick||No specific amounts exempted. Support payments are based upon individual financial circumstances and on provincial child support guidelines|
|Nfld. & Labrador||No specific dollar amounts. The exemption depends on marital status and the number of an employee’s dependents|
|Nova Scotia||Exemptions for Family Court orders are determined by the Court|
|Ontario||50 percent of a person’s net wages are exempt|
|PEI||No specific amounts exempted|
|Quebec||50 percent of an employee’s gross salary or wages|
|Saskatchewan||No established amounts. Judges have authority to set exemptions.|
|Northwest Territories||50 percent of an employee’s net wages are exempt. If 50% of the employee’s net wages is less than $600 per month, then $600 is exempt, plus $80 for each child in the employee’s custody|
|Nunavut||Not less than $300 a month, if debtor has no dependent children in his or her custody, further $80/month is exempt for each child|
|Yukon||No specific amounts exempted|
If you would like to learn more about preventing a lawsuit you might want to consider speaking to a bankruptcy trustee and learning more about filing for personal bankruptcy or making a consumer proposal.