Maryland Charging Order Creditor Debtor

 

Adkisson's

CHARGING ORDERS

The Creditor's Remedy Against A Debtor's Interest In An LLC Or Partnership

 

Maryland Charging Order

 

PROCEDURE

 

MD Rule 3-649. CHARGING ORDER

 

(a) Issuance of Order. Upon the written request of a judgment creditor of a partner, the court where the judgment was entered or recorded may issue an order charging the partnership interest of the judgment debtor with payment of all amounts due on the judgment. The court may order such other relief as it deems necessary and appropriate, including the appointment of a receiver for the judgment debtor's share of the partnership profits and any other money that is or becomes due to the judgment debtor by reason of the partnership interest.

 

(b) Service. The order shall be served on the partnership in the manner provided by Chapter 100 of this Title for service of process to obtain personal jurisdiction. The order may be served in or outside the county. Promptly after service of the order upon the partnership, the person making service shall mail a copy of the request and order to the judgment debtor's last known address. Proof of service and mailing shall be filed as provided in Rule 2-126. Subsequent pleadings and papers shall be served on the creditor, debtor, and partnership in the manner provided by Rule 1-321.

 

Committee note: If a person served pursuant to this Rule is a plaintiff as well as a person upon whom service on a defendant entity is authorized by the Rule, the validity of service on the plaintiff to give notice to the defendant entity is subject to appropriate due process constraints.

 

GENERAL PARTNERSHIPS

 

MD Corps. & Assoc. Code § 9A-504. Partner's transferable interest subject to charging order

 

Authority of court

 

(a) On application by a judgment creditor of a partner or of a partner's transferee, a court having jurisdiction may charge the transferable interest of the judgment debtor to satisfy the judgment. The court may appoint a receiver of the share of the distributions due or to become due to the judgment debtor in respect of the partnership and make all other orders, directions, accounts, and inquiries the judgment debtor might have made or which the circumstances of the case may require.

 

Lien and foreclosure

 

(b) A charging order constitutes a lien on the judgment debtor's transferable interest in the partnership. The court may order a foreclosure of the interest subject to the charging order at any time. The purchaser at the foreclosure sale has the rights of a transferee.

 

Redeeming an interest charged

 

(c) At any time before foreclosure, an interest charged may be redeemed:

 

(1) By the judgment debtor;

 

(2) With property other than partnership property, by one or more of the other partners; or

 

(3) With partnership property, by one or more of the other partners with the consent of all of the partners whose interests are not so charged.

 

Exemptions

 

(d) This title does not deprive a partner of a right under exemption laws with respect to the partner's interest in the partnership.

 

Exclusive remedy

 

(e) This section provides the exclusive remedy by which a judgment creditor of a partner or partner's transferee may satisfy a judgment out of the judgment debtor's transferable interest in the partnership.

 

LIMITED PARTNERSHIPS

 

MD Corps. & Assoc. Code § 10-705. Rights of creditor

 

On application to a court of competent jurisdiction by any judgment creditor of a partner, the court may charge the partnership interest of the partner with payment of the unsatisfied amount of the judgment with interest. To the extent so charged, the judgment creditor has only the rights of an assignee of the partnership interest. This title does not deprive any partner of the benefit of any exemption laws applicable to his partnership interest.

 

LIMITED LIABILITY COMPANIES

 

MD Corps. & Assoc. Code § 4A-607. Orders to charge against member's interest

 

Definitions

 

(a)

 

(1) In this section the following words have the meanings indicated.

 

(2) “Creditor” means a person for whom a court may issue an attachment under Title 3, Subtitle 3 of the Courts Article.

 

(3) “Debtor” means a person whose property or credits are subject to attachment under Title 3, Subtitle 3 of the Courts Article.

 

Court orders

 

(b)

 

(1) On application by a creditor of a debtor holding an economic interest in a limited liability company, a court having jurisdiction may charge the economic interest of the debtor in the limited liability company for the unsatisfied amount of the debt.

 

(2) The court may appoint a receiver for the distributions due or to become due to the debtor with respect to the limited liability company and make all other orders, directions, accounts, and inquiries that the debtor would have been entitled to make or that the circumstances of the case may require.

 

Liens; foreclosure

 

(c)

 

(1) A charging order constitutes a lien on the economic interest of the debtor in the limited liability company and requires the limited liability company to pay over to the creditor only any distributions that would otherwise be payable to the debtor whose economic interest is charged.

 

(2) Subject to paragraph (3) of this subsection, the noneconomic interest of a debtor whose economic interest is subject to a charging order is unaffected and is retained by the debtor.

 

(3)

 

(i) Unless otherwise agreed, on a showing that the distributions under a charging order will not pay the amount owed to the creditor within a reasonable time, the court may order foreclosure of the economic interest subject to the charging order and order the sale of the economic interest of the debtor.

 

(ii) The purchaser of the economic interest of the debtor at the foreclosure sale is an assignee as provided in §§ 4A-603 and 4A-604 of this subtitle.

 

Redemption

 

(d) Before a foreclosure under this section, an economic interest charged may be redeemed with property:

 

(1) Other than property of the limited liability company, by the debtor;

 

(2) Other than property of the limited liability company, by one or more of the members other than the debtor; or

 

(3) Of the limited liability company, with the consent of the members as provided in the operating agreement or, if the operating agreement does not so provide, with the consent of all of the members whose economic interests are not so charged.

 

Exemption laws

 

(e) This title does not deprive a debtor of a right under exemption laws with respect to the economic interest of the debtor in the limited liability company.

 

Exclusive remedy

 

(f) This section provides the exclusive remedy by which a creditor of a member may attach the membership interest of the member or otherwise satisfy the outstanding debt of the member out of the membership interest of the member.

 

RECENT ARTICLES

by Jay Adkisson

 

2020.06.20 ... Payment Of Distributions Directly To Creditor Holding A Charging Order Deemed Appropriate In BMO Case

2020.04.30 ... Charging Order Denied For Lack Of Proof Of The Debtor's Interest In Dhillon

2020.02.29 ... Florida Charging Order Requires Distributions To Be Re-Directed To The Creditor In Kostoglou

 

 

More Articles On Charging Orders click here

 

LAW REVIEW ARTICLES

by Jay Adkisson

 

For more on the historical background of Charging Orders and contemporary issues involving the same, see Jay Adkisson's article, Charging Orders: The Peculiar Mechanism, 61 South Dakota Law Review 440 (2016). Available at SSRN: https://ssrn.com/abstract=2928487

WEBSITE CONTENTS

 

General Information

 

Analysis of Uniform Limited Liability Company Act Sections re Charging Orders

  • Charging Orders (Section 503) contains the general charging order provisions.
  • Transfers of Transferable Interests (Section 502) includes definitions of "transfer" (102(23)), "transferable interests" (102(24)), and "transferees" (102(25)) defines to what the charging order attaches.
  • Definition of Distribution (Section 102(4)) specifies the economic right obtained through a charging order lien and/or foreclosure.

 

The Uniform Acts re Charging Orders and Transferable Interests (without Jay's comments):

 

Effect of Bankruptcy On The Debtor-Member's LLC Interest here

 

 

Collected Court Opinions On Charging Orders here and below

 

Charging Order Example Sample Form

 

TOPICAL RESEARCH

 

NATURE OF REMEDY

     Distributions/Economic Rights - Creditors rights to distributional interests/economic rights

PREJUDGMENT

     Prejudgment Relief - Freezing the interest and distributions pending judgment

MOTION MECHANICS

     Procedure - The procedure for obtaining a charging order and ancillary provisions

     Unknown Interest - Where the debtor's interest, if any, has not been ascertained

     Order Form Generally - Most issues to the form of the charging order

     Order Form Future Interests - How the charging order affects subsequently-acquired interests

     Exemptions - Available state and federal protections that may apply to charging orders

INTERSTATE

     Conflicts-Of-Law - Determining which state's laws apply to a charging order dispute

     Jurisdiction - Issues relating to the court's authority over out-of-state debtors and LLCs

     Foreign Entities - Charging orders against out-of-state entities

CREDITOR RESTRICTIONS

     Creditor Rights Restrictions - Limitations on creditors' management and informational rights

     Information Rights - Creditors' ability to access information about the LLC

     Management & Voting Rights - Rights of creditor after charging order issued

LIEN EFFECT AND PRIORITY

     Lien - The lien effect of a charging order and priority issues

COMPLIANCE

     Compliance - Issues for the LLC and non-debtor members in complying with a charging order

     Receiver - The role of the receiver in charging order proceedings

SINGLE MEMBER LLC

     Single-Member LLCs - Enforcing the judgment against an LLC with a sole member

FORECLOSURE

     Foreclosure - Liquidation by judicial sale of the debtor's right to distributions

REPURCHASE AND REDEMPTION RIGHTS

     Repurchase/Redemption Rights - Third-parties' ability to purchase the charged interest

APPEAL

     Appeal - Issues relating to the appeal of a charging order

RELATION TO OTHER REMEDIES

     Exclusivity - The charging order as the sole remedy available to creditors and exceptions

     Voidable Transactions/Fraudulent Transfers - Issues relating to avoidable transfers of interests

SUNDRY OTHER

     Bankruptcy - Treatment of the debtor/member's interest in bankruptcy

     Intra-Member Disputes - Where one member obtains a charging order against another

     Taxes - Tax issues relating to charging orders for all involved parties

 

= = = = =

 

Additional Court Opinions About charging orders (unsorted)

 

THE CHARGING ORDERS PRACTICE GUIDE

 

The Charging Order Practice Guide: Understanding Judgment Creditor Rights Against LLC Members, by Jay D. Adkisson (2018), published by the LLCs, Partnerships and Unincorporated Entities Committee of the Business Law Section of the American Bar Association, click here for more

 

Available for purchase directly from the ABA at https://goo.gl/faZzY6

 

Also available from Amazon at https://www.amazon.com/Charging-Orders-Practice-Guide-Understanding/dp/1641052643

OTHER INFORMATIONAL WEBSITES

by Jay Adkisson

 

  • Jay Adkisson - More about Jay D. Adkisson, background, books, articles, speaking appearances.

 

  • Creditor-Debtor Law - An overview of judgment enforcement tools and their uses by creditors, and possible defenses by debtors. Related topics include:

 

  • Voidable Transactions - Discussion of the Uniform Voidable Transactions Act (a/k/a 2014 Revision of the Uniform Fraudulent Transfers Act) and fraudulent transfer law in general.

 

  • California Enforcement of Judgments Law - Considers the topic of judgment enforcement in California, including the California Enforcement of Judgments Law and other laws related to California creditor-debtor issues.

 

  • Private Retirement Plans - An exploration of a unique creditor exemption allowed under California law which can be very beneficial but is often misused.

 

  • Protected Series - An examination of the single most complex statutory legal structure yet created, with particular reference to the Uniform Protected Series Act of 2017.

 

  • Asset Protection - The all-time best-selling book on asset protection planning by Jay Adkisson and Chris Riser.

 

 

  • Captive Insurance - Licensed insurance companies formed by the parent organization to handle the insurance and risk management needs of the business.

 

Contact Jay Adkisson:

 

Phone: 702-953-9617     Fax: 877-698-0678     jay [at] jayad.com

 

Unless a dire emergency, please send me an e-mail first in lieu of calling to set up a telephone appointment for a date and time certain.

 

Las Vegas Office: 6671 S. Las Vegas Blvd., Suite 210, Las Vegas, NV 89119, Ph: 702-953-9617, Fax: 877-698-0678. By appointment only.

 

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© 2020 Jay D. Adkisson. All Rights Reserved. No claim to government works or the works of the Uniform Law Commission. The information contained in this website is for general educational purposes only, does not constitute any legal advice or opinion, and should not be relied upon in relation to particular cases. Use this information at your own peril; it is no substitute for the legal advice or opinion of an attorney licensed to practice law in the appropriate jurisdiction. This site is https://chargingorder.com Contact: jay [at] jayad.com or by phone to 702-953-9617 or by fax to 877-698-0678.