You might find yourself in a position where you owe monies to a creditor and this creditor has sued you and successfully obtained a judgment against you. Now you are wondering what happens next? What can your creditor do with their judgment, how can it help them collect the money you owe and is there anything you can do about it?
Today I describe the special tools a creditor can use if they have obtained a judgment against you. Understanding these tools and being aware of where you stand is the first step in dealing with the implications if a judgment has been obtained against you.
How can your creditor obtain a judgment against you?
There are two basic scenarios in which your creditor can obtain a judgment against you:
- Firstly, a creditor will obtain what is called a default judgment which happens if a consumer who has been sued over an unpaid account does not file a defence.
- Secondly, a creditor might obtain a judgment against a consumer following a trial, or in some cases, following a motion for summary judgment.
Obtaining a judgment is no guarantee your creditor will collect any monies from you.
A judgment is an order of the court indicating that a particular debtor owes a sum of money to a specific creditor.
Judgments typically include an amount for costs, as well as pre and post judgment interest, which depending upon the rate of interest, can be huge. If your judgment, for example, arose in connection with monies owing on a department store credit card, then the rate of post-judgment interest might exceed 20 percent.
Once your creditor obtains a judgment, it is referred to as a judgment creditor and you are known as a judgment debtor. The fact that your judgment creditor has a judgment against you (the judgment debtor) is no guarantee however that it will recover a penny from you. A judgment debtor is under no legal obligation to cooperate with the judgment creditor for the purposes of paying any monies with respect to a judgment. However, once a creditor becomes a judgment creditor, it has access to special tools to assist in the collection of an outstanding account.
A Judgment Gives The Creditor A Leg-Up In The Collection Process
The fact that a judgment creditor has obtained a judgment against a judgment debtor will often assist the judgment creditor with recovering monies owing. A judgment creditor is entitled to take advantage of a number of enforcement remedies which are not available to a creditor that does not have a judgment against a particular debtor.
The three enforcement remedies most commonly used by judgment creditors include:
- A lien on real property;
- A wage garnishment; and
- Garnishments other than wage garnishments (bank accounts)
The judgment creditor might arrange for a judgment debtor examination
In some instances, a judgment creditor might take advantage of a judgment debtor examination. A judgment creditor has the right to have a judgment debtor appear at a scheduled time and place to answer questions regarding their finances. The purpose of a judgment debtor examination is to assist the judgment creditor in identifying the judgment debtor’s assets, income, bank accounts, and anyone owing monies to the judgment debtor.
If you are served with a notice to attend at a judgment debtor examination and you fail to attend then you are in contempt of court and you run the risk of a judge having you thrown in jail. In Canada, you cannot go to jail for owing monies to your creditors. You can, however, go to jail for failing to attend a judgment debtor examination and being found in contempt of court.
Creditor placing a lien on your real property
From a judgment creditor’s perspective, the most attractive enforcement remedy is placing a lien against your real property. This step transforms your creditor from an unsecured creditor into a secured creditor; a big win for your creditor.
If your creditor has obtained a judgment against you then your creditor can, now or at some future date, put a lien on any real property that you own on which your name appears on title. Real property includes a house, townhouse, condominium, cottage, rental property, farm, or vacant land.
If a creditor puts a lien on your real property, then your creditor will typically recover monies from you when the property is sold or remortgaged.
If you own real property and your financial situation is deteriorating, if it’s feasible, then you might consider selling your real property and renting until you get back on your feet. One of Canada’s largest banks routinely sues consumers on debts for as little as $2,500 if the debtor owns real property in their own name. In some cases, a consumer might be able to significantly reduce the odds of being sued by a creditor if he does not own any real property in his own name.
If you have been sued and you want to protect the equity in your real property by making a consumer proposal then you must act quickly-before your creditor obtains a judgment and puts a lien on your property. Ideally, you should schedule an appointment with a bankruptcy trustee within five business days of being sued-and definitely within 21 business days of being sued.
Creditor arranging a wage garnishment
Every province, with the exception of New Brunswick, permits judgment creditors to recover monies from a judgment debtor by way of a wage garnishment. It is very common for judgment creditors to identify your employer and then file the necessary paperwork to have your wages garnisheed. In Canada, provincial law protects a substantial portion of a judgment debtor’s wages from garnishment. In Ontario, for example, only 20 percent of a judgment debtor’s net take-home pay is available to judgment creditors by way of wage garnishments. The formula for calculating the size of the exemption in connection with wage garnishments varies from province to province.
One tactic for defeating a wage garnishment is to quit one’s job. If you discover that your wages are going to be garnisheed then one option is to quit that particular job, which will terminate the wage garnishment. Judgment creditors are reluctant to use a wage garnishment where the judgment debtor’s employer cannot be identified or the judgment debtor has a low-paying job or works in a field where one can easily switch employers. These individuals will simply find a new job as soon as one paycheque is garnisheed.
If your wages are garnisheed you have the option of negotiating a settlement with your creditor. You can attempt to negotiate a deal with your creditor in return for your creditor “lifting the garnishment order”. This might involve a one-time lump sum payment or an agreement to provide your creditor with installment payments. Your creditor might be willing to accept a discounted settlement if they are able to recover monies from you more quickly than they would under a wage garnishment.
A bankruptcy or consumer proposal will also stop a wage garnishment, even once deductions begin. The only exceptions are garnishment orders under family law for child and spousal support.
Creditor arranging a garnishment other than a wage garnishment
A garnishment order is essentially an order from a court which requires someone who owes monies to the judgment debtor to pay monies to the judgment creditor instead. This includes wage garnishments but can also include garnishments of bank accounts. A judgment creditor can garnishee monies sitting in a judgment debtor’s bank account because the bank owes monies to the judgment debtor equal to the amount of money sitting in the account.
If your creditor has obtained a judgment against you, then you should avoid having a bank account in your own name and having a joint bank account. You should consider obtaining something like a secured credit card and essentially using it as your bank account.
Speak To A Bankruptcy Trustee If You Have Been Sued
It might be prudent for you to speak to a bankruptcy trustee if you have been sued and are insolvent. Being insolvent means that you are unable to repay your debts as they come due. A bankruptcy trustee can offer legal remedies to stop the legal procedures that an unsecured creditor can make. This includes a law suit, garnishment order and can even prevent a lien on real property (although an existing lien cannot be removed through bankruptcy).
It may be especially important for you to meet with a trustee to discuss the merits of a consumer proposal where you own real property in your own name, you have significant equity in the property, and you have been sued. If you find yourself in this position, and you act quickly, then you might be able to protect one hundred percent of the equity in your real property by making a consumer proposal to your creditors.