When you hear talk of payday loans, it seems they always tend to go hand-in-hand with scary topics like bankruptcy and wage garnishing. However, with the right information you can learn how to responsibly borrow with a short-term loan in Canada and avoid these two situations entirely.
Nevertheless, wage garnishing can happen to some and it's important to understand how it works so you can be prepared. Read on to learn more about the process and your rights as a debtor.
What Does it Mean to “Garnish Your Wages?”
A wage garnishment is a court order that forces your employer to send part of your income right to the creditor. So, if you were supposed to be paying a cash advance lender $100 a week and you stop, they will go to court and could ask for your employer to send as much as 50% of your gross monthly pay to them.
There is a strict legal process that must be followed in order for a creditor to garnish your wages:
First, a creditor must obtain something called a judgment from the court; this is an official court acknowledgment that the creditor does have a claim against the debtor.
Then, a seizure summons must be officially granted to the creditor. This provides the creditor with the ability to seize any assets.
If there are no physical assets that a creditor can seize legally (like with an unsecured payday loan), then the creditor will give your employer a writ of seizure and start the process of garnishing your wages.
A percentage of your income will now be given to your creditor directly until your debt has been paid off.
When Can Collection Agencies Collect Owed Money?
A creditor can garnish your wages when you stop making payments toward your debt. This means that they have reason to believe you will not pay your debt any longer and must ask for a court to force your employer to pay them on your behalf.
What Are the Repercussions of Wage Garnishment?
It can be embarrassing to have your wages garnished. Since this process will involve your place of employment, it could hurt your reputation and your employers will know that you've been having difficulty paying off your debts. No one wants such personal information to be available at their place of work. Know that your employer is not legally allowed to demote you or fire you simply because your wages are being garnished. If you quit your job in an attempt to stop the garnishing, you will then face the issue of unemployment and not having any income to keep afloat. The garnishment is likely to pick-up when you get a new job, thus following you to every new place of employment.
What About Bankruptcy?
If you file for a consumer proposal or personal bankruptcy, chances are your wage garnishment will be halted. A consumer proposal is a legal process administered by a Licensed Insolvency Trustee (LIT) - professionals who are authorized to discharge you from your debt. In process of making a consumer proposal, the LIT will help you develop a way of repaying your creditors. This could mean paying back only a percentage of what you owe, or extending the time you have to pay off your debts.
When you file for bankruptcy, you surrender everything you own to an LIT in exchange for the complete elimination of your debts. Visit the Government of Canada's Office of the Superintendent of Bankruptcy to learn more about the process.
A consumer proposal and/or bankruptcy should still be your last option. Taking out a personal loan and then filing for bankruptcy will demolish your credit score and lower your chances of approval for future credit cards and bank accounts.
How Can You Prevent Wage Garnishing?
Anyone can find themselves in a position where they may need to take out a personal loan. Emergencies happen to the best of us! However, before taking out a payday loan, make sure that you have the capacity to make repayments on time and that you aren't borrowing more than you truly need. If you plan well in advance and have a good understanding of the loan agreement, then you should be fully capable of repaying a personal loan. Remember, when it comes to payday loans, you should be using them only for emergencies that come up!
In this case, your best option will be to cut back on unnecessary spending in order to repay your debt. Since you're covering an emergency payment, chances are nothing unexpected will happen for a second time very soon afterward that could impact your repayment plan.
However, if you fall behind on repayment, you should talk to the lender right away about other payments options for the remaining amount. Many lenders will be open to helping you find a new repayment route; planning ahead benefits both parties and helps to retain a good relationship between the debtor and creditor.
Looking for a Trustworthy Lender?
While this article serves as a cautionary tale, don't be scared off by the thought of payday lenders. These companies offer short-term loans that you can use to pay off an emergency bill while you wait for your next paycheck. iCash prides itself on friendly and reliable customer service, and is always willing to help our clients with their questions and concerns. In addition, our site contains a library of information where you can learn about how to achieve and sustain financial wellness, how online payday loans work, and how you can make a budget to suit your circumstances.
