What Happens If You Can't Pay a Court Judgment in Canada 2025

Updated March 2025 · 9 min read · bremo.io

If a creditor has won a court judgment against you in Canada and you simply cannot pay, you may be in a situation sometimes called "judgment-proof." This guide explains what that means, what creditors can still do to you, what is protected, and how to resolve the situation — including through formal insolvency options.

What Is a Court Judgment?

A court judgment is a formal court order that says you owe a specific amount of money to a creditor. To get one, the creditor must sue you in court (Small Claims Court for smaller amounts, Superior Court for larger ones) and either win the case or have you fail to respond (a default judgment). A judgment gives the creditor legal tools to collect that they didn't have before.

What Can a Judgment Creditor Do?

Once a creditor has a judgment, they can:

• Garnish wages: Apply to the court for a garnishment order against your employer, directing them to withhold a portion of your paycheque
• Garnish bank accounts: Seize funds in your bank account
• Register a lien on property: Place a lien against your real estate, preventing sale or refinancing until the debt is paid
• Seize and sell non-exempt personal property: In some provinces, seize and sell assets above exemption thresholds
• Examine you in court: Require you to attend an examination to disclose all your income and assets

What Is "Judgment-Proof"?

You are effectively judgment-proof when you have:

• No significant income above garnishment exemptions
• No bank accounts or bank accounts with only exempt income (like social assistance)
• No non-exempt assets for the creditor to seize

In this situation, the creditor has a valid legal judgment but cannot practically collect from you. They may attempt to garnish or seize assets, find nothing of value, and give up for now. The judgment, however, remains on the books.

Exempt Income Sources

Many income sources are exempt from garnishment in Canada:

• Ontario Works (social assistance) and ODSP (disability support)
• CPP Disability benefits
• EI benefits (these are federally protected from most garnishments)
• Child Tax Benefit / CCB payments
• Most provincial social assistance programs

Note: these sources are exempt from commercial creditors but the CRA can still garnish EI and CPP for tax debt in some circumstances.

The Problem with Staying Judgment-Proof

How Bankruptcy or a Consumer Proposal Eliminates Judgments

Filing a consumer proposal or bankruptcy under the BIA immediately stops enforcement of the judgment through the stay of proceedings. More importantly, at completion of the insolvency process:

• The underlying debt is legally discharged
• The judgment becomes unenforceable
• Wage garnishments must stop
• Property liens registered by unsecured creditors are released

This is often the cleanest and most permanent resolution — rather than waiting out a judgment that will follow you for years.

What to Do When Served With a Lawsuit

1. Do not ignore court documents — ignoring them leads to a default judgment against you
2. Respond to the claim even if you cannot pay — you may be able to dispute the amount or negotiate
3. Contact a Licensed Insolvency Trustee immediately for a free assessment — filing before a judgment is obtained can simplify things
4. If a judgment has already been obtained, an LIT can still help you eliminate it through insolvency
5. Consider Legal Aid if you cannot afford a lawyer and need to dispute the claim

Attending a Judgment Examination

If a creditor has a judgment and requires you to attend a court examination to disclose your assets and income, you must attend — failure to appear can result in contempt of court. Be truthful about your assets and income. If this is happening, it's a strong sign you should consult an LIT about formalizing your insolvency situation.