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Transferable Interest - Distributions And Economic Rights

Topic Transferable_Interest TopicsTransferableInterest




Courts frequently struggle with three issues in regard to the transferable rights, a/k/a distributional or economic rights of the debtor/member ("D/M"):

1. What constitutes the D/M's rights that are subject to the charging order.

2. The effect of a charging order on the D/M's rights.

3. The effect of a foreclosure on the D/M's rights.

What constitutes the D/M's rights that are subject to the charging order? The confusion here arises from the general structure of the Harmonized Acts, which require a court to look outside the creditor's rights Article to other parts of the particular Act to make the determination that only the D/M's distributional rights are implicated. This can be fixed by a better explanatory Comment.

The effect of a charging order on the D/M's rights? The current language of § 503(a) states that "a charging order constitutes a lien on a judgment debtor’s transferable interest . . .." The phrase "transferable interest" requires the court to then determine what that means, an eventually ends up a lien being placed on the "distributional interest". That the lien is on the "distributional interest" should be better spelled out in the Comment.

The effect of a foreclosure on the D/M's rights? Similarly, § 503(c) talks about "transferable interest" when "distributional interest" would be more clear.

TRANSFERABLE INTEREST ARTICLES

DISTRIBUTIONS AND ECONOMIC RIGHTS OF DEBTOR/MEMBER