Creditors Can Get an LLC Member’s Payments Through a Charging Order
If you are sued by a creditor and the creditor gets a judgement against you, you probably know that the creditor, in trying to satisfy the judgment can try to get some of your assets. When you think of the things a creditor can reach, you probably think of personal property, bank accounts or your household possessions. But what about your business? Can a creditor take all or part of your business to satisfy a judgment entered against you?
What a Creditor Can Get
A creditor in Florida can’t collect a judgment against you, by taking assets that belong to or which are titled in the name of your business. For example, if you have a medical debt, and a judgment is entered against you, the creditor could not take your company’s inventory to satisfy your judgment (with certain exceptions, such as with a single member LLC, where a creditor can take the debtor’s interest in the LLC from him or her).
However, the creditor could take any and all distributions (payments) made to you by the company, and specifically, when the company is an LLC. The creditor does that by getting what is known as a charging order from the Court.
The LLC does not have to make any extra payments if the charging order is entered, and the creditor cannot order the LLC to make any more payments than it wants to. However, any payments that are made to the debtor after the order is entered, must be paid directly to the creditor.
The charging order also does not permit the creditor to have any hand in the business itself. The creditor does not become a partner or manager.
Because the creditor can’t order the LLC to make any payments with a charging order, it is not a very effective remedy for a creditor to recover on a judgment. However, the LLC member who is relying on distributions from the LLC to pay his or her bills, will likely eventually have to have a payment from the LLC, and thus, the creditor will eventually get something from the Charging Order.
Charging Orders on Other Members
If you are OK with having payments from your LLC taken, what about other members of the LLC? If another member has a charging order entered against him or her, that member may have no interest in doing any work for the business, knowing his or her payments are going to the creditor.
Your business then would have a problem with a member that is not doing his or her fair share. This can create even bigger problems in the business’ operations. This is why you may want to look closely when forming LLCs, or when allowing others to become members of your LLC, to be certain that they are not at risk of a creditor taking his or her payments.
Call us with any questions about your business, or problems that you may be having running your business. Consult with our West Palm Beach business litigation attorneys to discover your options. Let our lawyers at Pike & Lustig, LLP, help you. Call us at 561-291-8298 to get a consultation.