Opinions Unknown Interest Charging Order

Unknown Or Uncertain Interest Held By Debtor

What if it is unknown what interest the D/M holds in the entity, if indeed the D/M holds any interest at all? This is an issue that has frequently befuddled the courts and has led to disparate results on similar facts.

With other assets, the judgment enforcement mechanisms allow a creditor to place a lien without having to ascertain whether the debtor has any interest, or exactly what that interest may be. Thus, for example, the filing of an abstract of judgment with the county recorder will pick up any real property that the debtor owns in the county, if at all, without the creditor having to make prior identification of it. If the debtor has not real property in the county, then the lien will simply have no effect: No harm, no foul. Allowing a creditor to place liens without knowing if they will attach to any property is completely consistent with the protective effect of liens.

Notably, this is also true with levies: A creditor may obtain a writ of levy directed to Chase Bank without knowing whether the creditor has any accounts there at all, but if the creditor does have accounts they are picked up by the levy.

Thus, the Harmonized Acts should be amended to provide that it is not necessary for a creditor to establish that the debtor has any interest in the entity, or the amount of the interest, prior to bringing the motion for charging order. If the debtor has no interest in the entity: No harm, no foul.

A final problem is that § 503(a) is couched in the discretionary "may enter a charging order" which frequently leads to confusion as to what circumstances may or may not exists that would cause the court to deny the charging order. This "may" should probably be replaced by the mandatory "shall", which would be consistent with other judgment enforcement remedies which are automatically issued by the clerk, i.e., levies and garnishments, etc.

Indeed, there is a question of whether the motion itself should be required. With other judgment enforcement remedies, the clerk simply issues the appropriate Writ, and then there is a hearing only if either the debtor or a third-party has a problem with the relief sought, i.e., the debtor asserts a claim of exemption, or a bank asserts a priority lien on funds of the debtor.

2020.12.17 ... Louisiana Court Of Appeals Rejects Busting Of Single-Member LLC In AOK Property

2020.11.28 ... Uniform Law Commission Creates Drafting Committee To Clean Up And Modernize American LLC Law

2020.11.26 ... Contempt Not Precluded By Charging Order Exclusivity In Gengs

2020.11.23 ... Charging Order Against Interest Of LLC In Bankruptcy Held Not To Violate The Automatic Stay In Nilhan

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

______________

More Articles On Charging Orders click here

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

General Information

• About Jay Adkisson and this website
• Articles About Charging Orders

Analysis of Uniform Limited Liability Company Act Sections re Charging Orders

• Charging Orders (Section 503) contains the general charging order provisions.

• Foreclosure of Charging Order Liens (503(c-e)) deals with foreclosure generally of an interest subject to a charging order lien.
• Foreclosure re Single-Member LLC (503(f)) is the special case of foreclosure of an LLC with only one member.

• 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):

• Uniform Limited Liability Company Act, Article V ("ULLCA" and "RULLCA").

• Uniform Partnership Act, Article V - ("UPA" and "RUPA")
• Uniform Limited Partnership Act, Article VII - ("ULPA" and "RULPA")

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

• 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.

• Anti-SLAPP Laws - A collection of and commentary about Anti-SLAPP laws and significant court decisions on the subject within the United States, and special focus on the California Anti-SLAPP law.

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

© 2021 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.