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. Are my IRAs secure against possible ...
    Retirement

    Are my IRAs secure against possible ...

  2. Attention Home Buyers! Why You Need ...
    Home & Auto

    Attention Home Buyers! Why You Need ...

  3. How To Invest When You're Deep In Debt
    Retirement

    How To Invest When You're Deep In Debt

  4. Payday Loans Don't Pay
    Options & Futures

    Payday Loans Don't Pay

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center