Do you currently have a garnishment against you? Are you wondering if you consolidate your debt if the garnishment will be lifted? This is a great question and largely depends on the type of debt, the type of consolidation, and your situation. We’ll go through various situations below. If you are in a situation that isn’t covered please feel free to comment at the bottom of the article and we can let you know!
A garnishment is when a creditor sues you, wins, and applies for an ‘assignment of wages’. This allows your creditors to seize a portion of your wages for an unpaid debt. Having debt is hard enough. Getting garnished just escalates the problem tenfold.
Traditional Debt Consolidation Loans
A traditional debt consolidation loan only removes a garnishment if you are able to pay the outstanding debt that is tied to the garnishment.
This typically isn’t possible because by the time a creditor gets a garnishment against you your credit is most likely already affected. Because of this obtaining a traditional consolidation loan isn’t an option that is usually available to tackle a garnishment because your credit is most likely already affected.
Just Making A Debt Payment Plan Through Budgeting
You may be wondering if you are able to simply call up your creditor after they have successfully obtained a garnishment against you and offer to make them monthly payments. While it is certainly worth a try, the creditor would have little incentive to do this. Garnishments can be up to 30% of your gross wages. Depending on your tax rate this can be 40-50% of your take-home pay. This is obviously extremely damaging to your financial position.
Because creditors, through a garnishment, will typically make more on a monthly basis than you can afford there is little incentive for them to accept a monthly payment plan.
We are now getting into the realm of where a garnishment can begin to be lifted entirely. An informal settlement can be an effective way to have a garnishment lifted if you can come to a successful agreement with your creditors. In saying that, the chance of this occurring is still very low through this means as in order for an informal settlement to work effectively you need to have access to a lump-sum of money.
Most of the time if a debt has got to the point where a garnishment has been applied any type of lump-sum of cash would be slim to none.
Will a consumer proposal lift a garnishment?
Absolutely. When you file a consumer proposal there is what is known as a ‘Stay of Proceedings’ which stops any on-going or future legal action as it relates to your debt. This applies to garnishments. The day you file a consumer proposal your garnishment will be lifted. However, it should be noted that there are certain debts where a garnishment will NOT be lifted. This typically applies to child support & alimony garnishments.
Also – while the garnishment will be lifted the same day you file, it may take the creditor/employer several weeks to remove the garnishment. Typically speaking, any funds that you pay after you file will be returned to you. For a typical creditor, this happens relatively quickly. If the garnishment was for a CRA debt then it can take them several months, unfortunately.
Will a bankruptcy lift a garnishment?
As with a consumer proposal, bankruptcy also has a ‘Stay of Proceedings’ that applies as soon as you file. To avoid re-explaining it, you can simply look above as the same rules apply.
What can you do if you are being garnished?
If you are being garnished you are most likely passed the point of self-help. We highly recommend speaking with a professional as although we have covered 90% of the cases above, there are always special circumstances.
As always, if you are struggling with debt (Especially a garnishment) please reach out. We would be more than happy to help you navigate the complexities of the debt world.
This article was written by David Moffatt. A Senior Debt Relief Specialist with 4 Pillars Halifax. 4 Pillars has assisted in creating plans that have helped save Canadians over $1 Billion dollars of consumer and tax debt since 2002. We believe that no consumer should have to struggle with the stress of overwhelming debt. Our debt restructuring strategies can help you cut your debt by up to 80% with less than 3% of our clients ever getting into deep financial difficulties again.
We are proud members of the Canadian Debtors Association. We work for you, not your creditors.
If you are struggling with debt please reach out. It hurts to continue to suffer financially. 4 Pillars Halifax services Halifax, Dartmouth, Bedford, Sackville and the entirety of HRM.