Yes, collection agencies can garnish your wages in Canada if they take the proper legal steps. If you’re receiving collection calls, your paycheque could be at risk. Learn how the garnishment process works and how to prevent or stop a garnishment from a debt collector if you have unpaid debts.

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Can Collection Agencies Garnish Your Wages?

Collection agencies are companies hired by creditors to collect unpaid debts. Like other creditors, they can escalate debt collection by taking you to court. Once they have a court judgment, they can proceed with wage garnishment.

The bigger question is not whether a collection agency can collect, but whether they will. In most cases, pursuing the collection of debts through the court is not profitable for a debt collection agency.

How often do debt collectors garnish wages?

Obtaining a garnishment order involves filing court fees and legal costs and investing time in the court process. As a result, collection agencies usually only pursue garnishment for larger debts (generally over $3,000) where they believe you have wages to garnish.

How soon can collection agencies start garnishing?

A collection agency must pursue a wage garnishment order within the legal limitation period. In Ontario, that means they must take legal action within two years. Debt collection agencies can’t get a wage garnishment for old debts that exceed the limitation period.

If your debts are under two years old, a collection agency may pursue legal action if they can’t reach a payment arrangement within 6-12 months of receiving the debt. The process takes another 2-3 months once they decide to pursue legal action: one month for you to respond to the legal claim, 2-4 weeks for a court judgment, and 2-3 weeks to obtain the garnishment order.

What Steps Must Collection Agencies Take Before Garnishment?

Before garnishing your wages, collection agencies must follow a specific legal process:

Notification of Debt: The collection agency must send you written notice that identifies who originally owned the debt, how much you currently owe, when the debt became overdue, and their legal authority to collect the debt. This validation letter lets you confirm the debt is actually yours and that the collection agency has the right to collect it.
Attempt to Collect Without Legal Action: The agency will first try to collect the debt through phone calls and letters. During this time, they may offer payment arrangements or settlements.
Filing a Lawsuit: If collection attempts fail, the agency can file a lawsuit against you. You’ll receive a Statement of Claim – a legal document that formally starts the lawsuit. In Ontario, you have 20 days to respond to this claim.
Court Judgment: If you don’t respond to the lawsuit, the court may issue a default judgment against you. If you do respond, the case will proceed to court, where both sides can present their evidence.
Garnishment Order: After receiving a court judgment, the collection agency must apply for a garnishment order. This order specifies how much can be taken from your wages.

What Happens Once a Wage Garnishment Is Issued?

After receiving a court judgment, the collection agency can obtain a garnishment order. This legal document requires your employer to send a portion of your wages directly to the creditor. In Ontario, creditors can garnish up to 20% of your net wages, though this amount varies by province.

Your employer must follow the garnishment order by law. They’ll receive detailed instructions about:

How much to deduct from each paycheque
Where to send the money
When the garnishment begins and ends

A garnishment order remains enforceable until the debt is paid in full or your employer is notified that you have filed a bankruptcy or consumer proposal.

What to Do When a Collection Agency Threatens Garnishment

Sometimes, collection agencies will threaten to start garnishment proceedings. If you think the debt is large enough to be concerned, here is what you can do to avoid a garnishment:

Contact the Debt Collector Early: Take immediate action when you receive collection notices. Contact the collection agency right away – they would rather work out a payment plan than go to court. Be honest about your financial situation and what you can afford to pay.

Create a Budget to Manage Debt: Review your income and expenses to determine how much you can put toward monthly debt repayment. A realistic budget helps when negotiating with creditors and shows you’re serious about resolving your debts. Include all sources of income and necessary expenses to determine what you can actually afford to pay.

Negotiate a Payment Plan: Collection agencies may accept a lower monthly payment or even a reduced lump-sum settlement if you do this before a garnishment order is issued. Present your budget when negotiating, and always get a written agreement before making payments.

Try Credit Counselling: A debt management plan cannot legally stop a wage garnishment. As with a negotiated arrangement, it’s best to approach a credit counsellor for repayment assistance before the collection agency proceeds to legal action. The agency must agree to participate in any repayment program.

Avoid Ignoring Debt Notices: Ignoring collection notices or hoping the problem will go away on its own usually leads to wage garnishment. The longer you wait to address the debt, the fewer options you’ll have available.

How to Stop a Collection Agency Garnishment

Once a garnishment order is issued, your options are more limited. You can try to negotiate with the collection agency to remove the garnishment. In our experience, however, they are generally unwilling to accept less than full payment once a garnishment order is in place.

Contact a Licensed Insolvency Trustee

If having your wages garnished is causing financial hardship, or you’re dealing with multiple debts, contact a Licensed Insolvency Trustee immediately. A consumer proposal or bankruptcy can stop wage garnishment right away through a legal protection called a “stay of proceedings.” This gives you time to deal with your debts properly and create a plan for your financial future.

Consumer Proposal: This legal process lets you offer to pay a percentage of what you owe, stop interest charges, and keep your assets. A consumer proposal immediately stops wage garnishment and collection calls. Your creditors must follow the payment plan once they accept your proposal.

Bankruptcy: While typically a last resort, bankruptcy stops wage garnishment through a legal stay of proceedings. It eliminates most unsecured debts but has more serious consequences for your credit rating and some assets.

Don’t wait until your wages are being garnished to seek help. Contact Hoyes Michalos for a free consultation to review your options and develop a plan to deal with your debts before garnishment begins.

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Can Collection Agencies Garnish Your Wages in Canada?