Taking out a payday loan in Canada can be a matter of great risk because you only have two weeks of short term tenure to repay the loan. And, that too at a higher interest rate which comes out to an average APR of 400%.
If due to unfortunate circumstances, you fail to repay the loan, then you are left with no choice but to roll over the loan payment and only pay the interest rate. But what if in the end, you completely fail to repay and do not want to continue the same?
In such circumstances, you might face the legal ramifications of a wage garnishment order against you. However, with the right information, you can avoid such hefty situations and prepare yourself for the worst situation well in advance. Read on to learn more about wage garnishment after you fail to repay the payday loan and ways to come out of this situation.
What is Wage Garnishment in Canada?
If you have reached your financial saturation point and can no longer pay for the payday loan you have taken, then there can be legal repercussions against you in the form of a wage garnishment order. Most commonly, payday loan defaulters stop taking the calls of the collection agents in relation to non-payment of the loan amount. In such a case creditors obtain a legal order against the defaulter to repay the loan. And, lenders send the order to the borrower’s employer to make sure the fact that the company will deduct 20% to 50% (depending on the total loan amount along with interest charges and late payment fees) of the borrower’s paycheque to settle the unpaid loan amount.
To better understand the concept of wage garnishment in payday loans, let’s take an example and then look at the step-by-step process.
Example: If your disposable income is $300, then 25%(let’s say the wage garnishment ratio) of that amount would be $72.50. Since $72.25×30=$217.50, disposable earnings will be off #300-$217.50=$82.50. So, the lesser of the two figures is $72.50 is the amount that will be deducted weekly from your paycheque on the part of the wage garnishment order against you.
Step-By-Step Process as to How Strict Wage Garnishment Order Works?
First, the lender should take an official order from the court which in legal terms is better known as the judgement order. It is a court’s official acknowledgement that the lender does have a claim against the payday loan defaulter.
Next is the delivery of the summons to the debtor. It proves lenders with the ability to seize the assets of the debtor.
In case, no article is available to seize as an asset of the debtor, then lenders will go straight to their employer on the account of garnishing the debtor’s weekly or monthly wages.
Lastly, a fixed percentage of income will be given to the creditor directly until the loan is fully paid off.
See How Much of Your Income Can be Garnished?
You must be having a dilemma in mind as when proved payday loan defaulter and a judgement of wage garnishment is passed from the court. Then how much percentage of your monthly/weekly income be deducted. To answer this query, we give a brief overview of how much of your disposable income will be adjusted by creditors according to different federal laws.
|Type of Loan||% of Weekly Disposable Income that Can Be Deducted|
Credit Card, medical bills, personal loans and most other consumer debts
|Child Support and Alimony||
|Federal Student loans||15%|
|Taxes||Generally, up to 15%. The Internal Revenue Service will determine the amount taken based on standard deductions and the number of dependents you have.|
Specific Rules Related to Wage Garnishment
There are specific rules associated with wage garnishment in Canada. And, you can have a better look at the following:
- No employer can terminate the debtor unless the loan is fully repaid.
- There are high chances that lenders will sue the loan defaulters and reach the court to get the judgement and final order of the wage garnishment.
- Typically, payday loan lenders rely on voluntary payroll for the deduction of the unpaid amount. In case, you have signed a voluntary assignment to allow payroll deductions, then you are not entitled to the wage garnishment legal order from the court. Because you have voluntarily opted for weekly deductions from your payroll at the beginning of taking a payday loan.
Things to Do When you Get a Wage Garnishment Judgement
First of all, do not panic, if such an order of repayment or deduction has been granted against you. Carefully read the judgement to check, there is not the mention of the amount that you have already paid. And, then create your strategy using the following tips to deal with such a legal order against you.
- Try to talk with your creditor first about the possible payment plan. At most times, borrowers do not make any connection with lenders while defaulting on the loan payments. But if you do, there would be chances of finding a middle solution.
- If you find that the wage garnishing order is full of errors or having a loan amount mentioned more than you borrowed, then you can challenge the judgment in the court itself.
- If everything is transparent in front of you related to terms and conditions mentioned in the wage garnishing order, then accept it faithfully. Make a regular payment of the pending loan and make sure not to face any such legal ramifications in the near future.
Different Ways to Stop Wage Garnishment
Now, comes the part of the solutions, if you do want to entertain the issues associated with the wage garnishing order.
- Quit your job so that you will not be having any wages to garnish. This could be one of the solutions but not the viable one when you need some cash.
- Get in touch with another creditor and talk on terms of a new line of payment loan to avoid legal hassles.
- Apply for a personal loan to pay off the debt.
- File a consumer proposal.
- File for personal bankruptcy.
If you are thinking of facing the legal trouble of wage garnishment in the near future, then you can come to us to apply for personal loans. Waive off your fiscal troubles by getting in touch with our reliable creditors offering flexible repayment plans.