Charging Order

AAA

DEFINITION of 'Charging Order'

A court-authorized right granted to a judgment creditor to attach distributions made from a business entity, such as a limited partnership (LP) or limited liability company (LLC), to a debtor who is a partner of the business entity.

The charging order is usually limited to the dollar amount of the judgment and is akin to a garnishment of wages or income. It does not give the creditor management rights in the entity, nor can the creditor interfere in the management of the entity to which the debtor is a partner/member.

INVESTOPEDIA EXPLAINS 'Charging Order'

There are some states that do not limit creditors to a charging order to satisfy their claim. These states, based on varying criteria and circumstances, allow the creditor to foreclose on the interest of the debtor in the investment-based entity. In essence, the creditor can force the liquidation of the entity in order to satisfy the claim against the debtor.

In particular, a debtor's interest in a single-member LLC may be foreclosed upon in addition to the grant of a charging order. The reasoning is that there are no other non-debtor members whose interests need be protected; therefore, the entity can be liquidated and the proceeds used to satisfy the creditor's judgment claim.

Charging order limitations, in the states that have them, such as California, are a good way to protect partnership assets. They are also common in the U.K.

RELATED TERMS
  1. Restitution Payments

    The payment of punitive damages that are owed as a result of ...
  2. Collection Agency

    A company hired by lenders to recover funds that are past due ...
  3. Limited Partnership - LP

    Two or more partners united to conduct a business jointly, and ...
  4. Limited Liability Company - LLC

    A corporate structure whereby the members of the company cannot ...
  5. Garnishment

    A legal process whereby payments towards a debt owed by an individual ...
  6. Discharge In Bankruptcy

    A permanent order that releases the debtor from personal liability ...
Related Articles
  1. Retirement

    Are my IRAs secure against possible liens?

    Your IRA is protected from bankruptcy up to $1 million. However, in all other cases, state law determines whether any protection exists and the level of protection.It is best to consult with ...
  2. Home & Auto

    Attention Home Buyers! Why You Need A Lawyer

    Property transactions are complex and subject to specific state/local rules. A professional can simplify the process.
  3. Retirement

    How To Invest When You're Deep In Debt

    Debt is one of the biggest obstacles that prevents people from investing - but it shouldn't be.
  4. Options & Futures

    Payday Loans Don't Pay

    Hold too tightly to this rescue line and you'll soon be drowning in debt.
  5. Home & Auto

    Equity Stripping Leaves Creditors Empty-Handed

    Add additional debt to your real estate assets to keep the creditors at bay.
  6. Investing

    Debt Reckoning

    Learn about debt ratios and how to use them to assess a company's financial health. You could save a lot of money!
  7. Options & Futures

    Changing The Face Of Bankruptcy

    A 2005 law attempts to unmask fraudulent debtors and still save those who are struggling. Will it affect you?
  8. Retirement

    What is a longevity annuity?

    Understand all the characteristics of a longevity annuity contract, the purpose of a longevity annuity and what type of investor it appeals to.
  9. Insurance

    How do I determine the face value of a life insurance policy?

    Read about how to determined the face value for any life insurance policy, and see what circumstances can trigger a change in face value.
  10. Professionals

    Master Limited Partnership (MLP)

    A master limited partnership, also referred to as an MLP, is a publicly traded partnership, where the limited partnership interests are traded much like shares in a corporation.

You May Also Like

Hot Definitions
  1. Multiplier Effect

    The expansion of a country's money supply that results from banks being able to lend. The size of the multiplier effect depends ...
  2. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  3. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  4. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  5. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  6. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
Trading Center