Charging Order

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.

BREAKING DOWN '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. External Claim

    A claim against an individual that does not arise out of any ...
  2. Creditor

    An entity (person or institution) that extends credit by giving ...
  3. Judgment Lien

    A court ruling that gives a creditor the right to take possession ...
  4. Collection-Proof

    A debtor who doesn’t have any assets that a creditor can collect ...
  5. Debtor

    A company or individual who owes money. If the debt is in the ...
  6. Deficiency Judgment

    A judgment made by a court against a debtor indicating that the ...
Related Articles
  1. Economics

    What Does a Creditor Do?

    A creditor is a person or entity that loans money or provides goods or services to another entity with the expectation of being paid back in the future.
  2. Term

    What's a Debtor?

    A debtor​ is an individual or company that owes money.
  3. Personal Finance

    Protect Your Personal Assets

    A family limited partnership (FLP) can go a long way toward securing your family's property.
  4. Options & Futures

    Asset Protection For The Business Owner

    Could incorporating your business help protect it? Find out here.
  5. Investing Basics

    The Basics of Forming A Limited Liability Company (LLC)

    An LLC is a good combination of protection with flexibility and tax benefits. It provides an array of taxation alternatives while shielding individual members from personal liability.
  6. Home & Auto

    Equity Stripping Leaves Creditors Empty-Handed

    Add additional debt to your real estate assets to keep the creditors at bay.
  7. Professionals

    Family Limited Partnership or Limited Liability Company

    Family Limited Partnership or Limited Liability Company
  8. Economics

    Understanding Limited Liability

    Limited liability is a legal concept that protects equity owners from personal losses due to their ownership interest in the company.
  9. Credit & Loans

    Credit And Debt Management: Debt Collection And Bankruptcy

    by Cathy ParetoIt's never a good day when a debt collector is knocking on your door. Not only is being on the receiving end of debt collection costly, it can be downright stressful and humiliating. ...
  10. Professionals

    Taxation at Entity and Owner Level

    Taxation at Entity and Owner Level
RELATED FAQS
  1. Can a creditor sue me for a delinquent account?

    Learn what happens when an account is delinquent and read about the regulations that protect consumers who have delinquent ... Read Answer >>
  2. Do creditors have the same rights in all 50 US states?

    Learn more about the rights of creditors to pursue their debts; how they may vary from state to state and how they are regulated ... Read Answer >>
  3. How do debt collection agencies make money?

    Find out how a collection agency makes money, what rules it is bound by, and when it can take a pay check or garnish a bank ... Read Answer >>
  4. Can a Limited Liability Company (LLC) issue stock?

    Learn about a limited liability company, or LLC, and if it is able to issue stock. Understand the benefits of an LLC, both ... Read Answer >>
  5. In a corporate liquidation, why are unpaid taxes and wages paid before general creditors ...

    The Bankruptcy Code, section 507, states that when a corporation is liquidated, creditors are paid in a particular order: ... Read Answer >>
  6. What are some examples of how corporations manage short-term investments?

    Learn how a business owner can protect against significant liability by forming a corporate entity structure, and understand ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center