Debt Relief Experts
If you’re facing a wage garnishment order, personal bankruptcy offers immediate legal protection to stop most garnishments. When you file bankruptcy, an automatic stay of proceedings takes effect immediately, forcing your creditors to stop collection actions, including wage garnishments.
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What is an Automatic Stay of Proceedings?
The automatic stay is a legal protection that takes effect the moment you file for bankruptcy. Because a wage garnishment is a legal process that can only be stopped by another court order, the automatic stay provides the legal authority needed to end the garnishment. This court order prevents creditors from continuing or starting any collection actions against you, including wage garnishments.
When you file bankruptcy with Hoyes Michalos, we immediately notify your employer of the automatic stay. We can typically have the stay of proceedings order faxed to your payroll department the same day you file, often within hours. Your employer is legally required to stop the garnishment as soon as they receive this court order, just as they were required to start the garnishment when they received the original garnishment order.
The automatic stay remains in effect throughout the bankruptcy process, providing continuous protection from most collection actions and garnishments.
Which Garnishments Will Bankruptcy Stop?
Bankruptcy deals with unsecured debts and immediately stops all legal action, including wage garnishments, by unsecured creditors. This includes garnishments for unpaid debts from credit card companies, personal loans, payday loans, collection agencies, and even tax debts owed to the Canada Revenue Agency (CRA).
Bankruptcy cannot stop wage garnishments for child support or spousal support payments, as these are considered priority debts that survive bankruptcy.
Bankruptcy also does not stop secured creditors from exercising their rights against their security. However, these creditors rarely use wage garnishments – they are more likely to repossess your car or foreclose on your home.
What About Liens and Other Legal Registrations?
While bankruptcy stops wage garnishments immediately, it works differently with liens. A lien registered against your property before bankruptcy remains valid during and after bankruptcy. This means if a creditor has already registered a lien against your house or other property, filing bankruptcy won’t remove it. However, bankruptcy will stop that same creditor from trying to garnish your wages in addition to their lien.
Stop Your Wage Garnishment Today
Credit Impact of Bankruptcy vs. Collections
Many people worry about bankruptcy’s effect on their credit, but it’s important to understand how your full financial situation impacts your credit report.
Collections and Garnishments On Credit Report
Garnishments indicate a serious default and severely impact your credit. By the time you have reached the stage of wage garnishment, you have multiple negative late payment entries on your credit report, harming your credit score.
- Accounts in collection appear on your credit report as an R9, the same as bankruptcy.
- Each collection account will remain on your credit report for 6 years from the date of last payments.
- Multiple collection accounts compound the negative impact
Credit Impact of Bankruptcy
Bankruptcy does affect your credit score. However, bankruptcy provides a fresh start with a defined timeline for recovery.
- Each account included in your bankruptcy will appear on your credit report as an R9
- Bankruptcy remains on your credit report for 6-7 years from the date of filing.
When accounts are in collection and your wages are being garnished, your credit score is already impacted by multiple R9 ratings. While bankruptcy will also show as an R9, it consolidates all these negative ratings into one event. Many people who complete bankruptcy qualify for new credit within 2-3 years of discharge, often sooner than those stuck in an ongoing cycle of R9 collections and garnishments.
After filing for bankruptcy, your debts are eliminated, and you can start rebuilding your credit immediately after discharge.
Can Garnishments Return After Bankruptcy?
Once you receive your discharge from bankruptcy, most debts that led to the original garnishments are eliminated permanently. This means those creditors can never garnish your wages again for those specific debts.
However, you could face new garnishments if you:
- Incur new debts after bankruptcy and default on payments
- Have debts that weren’t eliminated in bankruptcy (like recent student loans)
- Fall behind on support payments
- Owe new tax debt to CRA
The key to preventing future garnishments is maintaining a solid financial plan after bankruptcy. Your Licensed Insolvency Trustee will provide financial counselling during your bankruptcy to help you develop better money management skills.
Do I Have Other Options?
While bankruptcy effectively stops most garnishments, you should also consider other debt relief options:
- A consumer proposal stops garnishments just like bankruptcy. This option is more suitable if you have high income or assets you want to keep. A consumer proposal also has less of an impact on your credit than bankruptcy.
- Debt consolidation must be arranged before a garnishment starts. To be feasible, you must have sufficient income and credit capacity to qualify for a debt consolidation loan. This is unlikely if you are facing a wage garnishment for unsecured debt.
- Credit counsellors may be able to negotiate a repayment plan but cannot legally stop a wage garnishment. Creditors are unlikely to voluntarily lift a garnishment as they will be concerned about your ability to keep up with monthly payments.
- It is possible to negotiate a payment plan directly with the debt collector; however, this must be done before a wage garnishment order is issued. This solution often requires a lump sum payment or enough income to support the payment plan. There is also no guarantee the creditor will agree.
Each option has its advantages, but timing is critical. Once a garnishment is in place, bankruptcy and consumer proposals are the most effective solutions for immediate relief.
Don’t wait until more of your wages are garnished. Contact Hoyes Michalos today for a free consultation to learn how bankruptcy can stop your wage garnishment and help you get a fresh financial start. Our experienced team can typically have your garnishment stopped within hours of filing.
