Review of The Garnishment Act

Executive Summary

A. Introduction

In response to a reference from the Minister of Justice and Attorney General, the Manitoba Law Reform Commission has made 30 recommendations aimed at modernizing the civil remedy of garnishment. Garnishment, one of a variety of enforcement legal tools, allows a creditor to attach money owed by a third person (e.g. an employer) to the debtor. It has been described as a powerful and harsh remedy relatively uncontrolled by judicial or administrative supervision and it differs from other enforcement remedies in that it draws a stranger into the enforcement process. In its report, the Commission points out that true modernization of any individual remedy cannot be achieved without a comprehensive and fundamental reform of the entire civil enforcement regime.

B. Background

The fundamental goal of an enforcement regime is fostering public confidence in the judicial system. The specific mechanisms addressed in this Report include universal exigibility of a debtor's property, just exemptions, equitable sharing among creditors and simplicity of process.

In general, garnishment is most commonly used to enforce a judgment of the court that the defendant must pay the creditor a sum of money (post-judgment garnishment). In fewer instances, it can also be used to attach an alleged debtor's assets before judicial determination of the existence and amount of the debt (prejudgment garnishment).

Every garnishment process is governed by The Garnishment Act and the Court of Queen's Bench Rules but there are also 19 other provincial statutes and a number of federal statutes which contain one or more provisions relating to garnishment. The Commission notes that the current Act has not been rationalized or reorganized since it was first enacted despite substantial amendments in the past thirty years. The goal of modernization should be the removal of impediments to effective use of the system. The present organization of the legislation is cumbersome and numerous provisions are outdated in terms of their applicability and terminology. There is also some duplication or overlap between Act and the Rules. The Commission therefore recommends that the legislation be reorganized and rewritten using modern concepts and plain language to make it easier for creditors, garnishees and debtors to understand, utilize and comply with the garnishment remedy.

C. Post-Judgment Garnishment

Post-judgment garnishment is used to enforce or collect a civil judgment for a debt or damages, spousal (partner) and child maintenance, unpaid fines, forfeited recognizance orders and restitution orders ("criminal penalties"). Whether or not a particular debt or financial obligation may be garnished depends upon the type of debt and, in some cases, the identity of the garnishing party. All creditors have access to wages and debts due or accruing due from a garnishee to the debtor. In Manitoba, however, the Maintenance Enforcement Program (MEP), which has statutory authority to enforce maintenance debts and criminal penalties, has exclusive access to joint obligations (obligations owed to the debtor jointly with one or more other persons, such as a joint bank account) and future obligations (obligations which become owing or payable sometime after service of a notice of garnishment) and has extended powers of garnishment and priority to garnished funds.

The Commission recommends a redefinition of the scope of garnishment, moving away from out-dated concepts of a debt due and accruing due and wages and substituting those of current, joint and future obligations. To promote fairness among creditors, the Commission recommends the universal exigibility of a debtor's property, subject to specific and principled exceptions. While collection of maintenance debts and criminal penalties should continue to have priority over civil debts, there is no reason why a general creditor should not have access to joint and future obligations when there are no outstanding debts for maintenance or criminal penalties.

In garnishment of future obligations, the Commission suggests the prerequisite of an existing legal relationship between the debtor and the garnishee, a time limit of 60 days for garnishment of deposit accounts and one year for all other financial obligations. In the garnishment of joint obligations, the Commission proposes different presumptions regarding the debtor's entitlement to the joint obligation. At present, in garnishment by the MEP, a debtor is presumed to be entitled to the entire joint obligation, placing the onus on the debtor or joint obligee to prove otherwise. No change is recommended to this rule but the Commission recommends a variation for garnishment by general creditors so that the debtor is presumed to have an entitlement to one-half of the obligation. Again, this presumption should be open to challenge by the joint obligee, the debtor or the creditor upon application to court.

To protect the joint obligee's privacy, the Commission recommends that it be the garnishee who is required to notify the joint obligee of the garnishment proceeding. This notice should be in a form prescribed by regulation and served by registered mail.

The Commission then addresses the exigibility of future income plans such as registered pensions, RRSPs, DPSPs and RRIFs. There is significant disparity in the treatment of such plans with the latter generally exigible and pensions and insurance product RRSPs generally exempt from execution. In the Commission's view, fairness and equity require that all future income plans be treated the same way and, accordingly, assets forming part of any future income plan which is retirement savings plan under the federal Income Tax Act should be exempt.

However, the Commission recommends a different approach for payment from future income plans. These payments will often form the debtor's primary source of income and are similar to or a replacement for employment income. Therefore payments from all future income plans, including registered pension plans and insurance product RRSPs, should be exigible, subject to the statutory wage exemption. The repeal of the protection for pension income and annuity income is necessary to achieve fairness and uniformity in the treatment of retirement income and to create a better balance between the rights of creditors and debtors.

D. Exemptions From Garnishment

In the Commission's view, a garnishment regime should protect debtors by providing for just exemptions, allowing a debtor to retain enough income to meet his or her basic needs and those of his or her dependants. Although no change is recommended to the general exemption of 70% of the debtor's wages, the mandatory minimum exemption of $250 per month for a single debtor or $350 for a debtor with dependants (regardless of the number) is woefully inadequate and must be increased.

The ideal exemption should accommodate changes in the economy and the different income levels and support obligations of debtors. A fixed amount exemption may be simple to calculate but becomes meaningless over time. The failure to reflect the varying economic needs of families may force some debtors out of employment. The exemption should put a debtor in a better position than he or she would be if receiving public income assistance. Accordingly, it is recommended that the minimum monthly exemption be equivalent to 120% of the provincial income assistance rates. The disadvantage of this approach is that it will be more difficult for a garnishee to ascertain than a fixed rate, a difficulty which could be overcome with better instructions in the Wage Memorandum. Alternatively, the exemption could be set at $600 per month plus $100 for each dependant.

In addition, the Commission recommends applying the wage exemption to other sources of income which are similar to or a substitute for employment income such as retirement income, certain damage awards, statutory benefits under The Manitoba Public Insurance Act and The Victims' Bill of Rights Act and maintenance income. It also addresses the application of the wage exemption to wages deposited into the debtor's bank account resulting in loss of their exempt status. The Commission therefore recommends that debtors should be entitled to apply to court for an order exempting monies in a bank account where it can be shown that the monies are employment income.

E. Procedural Requirements

This section of the Report examines the application process, the garnishee's response, the obligation and exemption challenge processes, priority and payment out of court and costs. The current application requirements are generally adequate but it is recommended that creditors have the option of claiming costs and be required to disclose any exemption to which the debtor may be entitled and the number of dependants, if known. In the absence of such information, the garnishee may presume that the debtor is entitled to the exemption for a debtor without dependants, subject to the creditor's and the debtor's right to rebut the presumption. As well, the Notice of Garnishment should explicitly prohibit sanctions against the debtor and should specify the duration of the garnishing order.

In the Commission's view, the current system of priority is generally satisfactory but its legislative expression should be simplified by placing all provisions in one section of the Act. It is therefore recommended that, after satisfaction of the claims of priority creditors, general creditors share in the proceeds rateably, subject to the payment of the garnishing creditor's costs. General creditors seeking a share of monies paid into court should be required to file a Notice of Claim in the Court of Queen's Bench provided that funds paid into court under a prejudgment garnishment order are not disbursed until the underlying action is concluded. It is also recommended that a searchable database be established by the Court of Queen's Bench to enable creditors to determine the amount of garnished funds paid into court on account of a specific debtor. As well, garnishees should be entitled to claim costs in the amount of $25 for each payment under a garnishment order and $1 for each subsequent payment, which costs should be deducted from the amount paid into court by the garnishee.

F. Prejudgment Garnishment

Although prejudgment garnishment is not universally accepted in Canada, the Commission is of the view that its practical benefits justify its retention. However, recognizing the potential for abuse, it recommends a number of safeguards including limiting the remedy to actions for debt alone as well as requiring plaintiffs to give an undertaking for damages and to pay costs and interest to a debtor where money has been improperly garnished before judgment.

Report #112,
March, 2006