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. Chapter 11

    Named after the U.S. bankruptcy code 11, Chapter 11 is a form ...
  3. Garnishment

    A legal process whereby payments towards a debt owed by an individual ...
  4. Limited Partnership - LP

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

    A corporate structure whereby the members of the company cannot ...
  6. Discharge In Bankruptcy

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

    Are my IRAs secure against possible ...

  2. Home & Auto

    Attention Home Buyers! Why You Need ...

  3. Retirement

    How To Invest When You're Deep In Debt

  4. Options & Futures

    Payday Loans Don't Pay

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center