Charging Orders in Texas

Collin, Dallas, Denton, Grayson And Surrounding Areas

How a Judgment Creditor Can Reach an LLC or Partnership Interest Without Automatically Taking the Business

A charging order is a specialized post-judgment remedy used when a judgment debtor owns an interest in an LLC or partnership. Instead of seizing the company itself, the creditor obtains a lien against the debtor’s ownership interest and may receive distributions that otherwise would have been paid to the debtor.

Texas law gives charging orders significant importance because, for many LLC and partnership interests, the charging order is expressly the exclusive remedy for satisfying a judgment out of that ownership interest.

That means a creditor with a judgment against an LLC member does not automatically become a member, take over management, seize company bank accounts, or acquire company property merely because the debtor owns part of the entity.

Ridgely Davis Law represents Texas business owners and guarantors in post-judgment disputes involving charging orders, turnover orders, receiverships, post-judgment discovery, and collection against business interests.

What Is a Charging Order?

A charging order is a court order that places a lien on the judgment debtor’s ownership interest in an LLC or partnership and directs qualifying distributions that would otherwise be payable to the debtor toward satisfaction of the judgment.

For Texas LLCs, Business Organizations Code Section 101.112 provides the charging-order framework.

The official statute is available through the Texas Business Organizations Code Chapter 101.

Charging Orders Against Texas LLC Interests

Section 101.112 provides that a court may charge the membership interest of a judgment debtor to satisfy the judgment.

Critically, the statute provides that:

• The creditor has only the right to receive distributions that would otherwise be payable to the judgment debtor with respect to the interest;
• The charging order constitutes a lien on the membership interest;
• The charging-order lien may not be foreclosed under the Business Organizations Code or other law;
• The charging order is the exclusive remedy by which a judgment creditor may satisfy a judgment out of the membership interest; and
• The creditor does not obtain possession of or legal or equitable remedies against LLC property merely through the charging order.

These protections make the charging order materially different from seizure of company assets.

Does the Creditor Become an LLC Member?

No, not merely because a charging order is entered.

The creditor generally obtains an economic collection right against distributions payable to the judgment debtor. It does not automatically obtain:

• Voting rights;
• Management authority;
• Access to the LLC’s bank account;
• Ownership of LLC property;
• Authority to bind the company;
• Rights to run day-to-day operations; or
• The power to force foreclosure of the membership interest under Section 101.112.

Does the Charging Order Let the Creditor Take LLC Assets?

No. The LLC owns its property separately from its members.

A creditor holding a judgment against an individual member cannot use a charging order by itself to seize:

• LLC bank accounts;
• LLC vehicles;
• LLC equipment;
• LLC inventory;
• LLC real estate;
• LLC receivables; or
• Other company property.

If the LLC itself is the judgment debtor, different collection remedies may apply.

See Collecting Judgments Against Businesses.

What Happens to Distributions?

To the extent the charging order applies, a distribution that otherwise would be payable to the judgment debtor may instead be redirected toward the judgment.

This can include qualifying:

• Cash distributions;
• Profit distributions;
• Liquidating distributions;
• Other distributions tied to the ownership interest; and
• Potentially other amounts characterized under the governing entity documents and law.

Whether a specific payment is a “distribution” should be analyzed based on the company agreement, accounting, tax treatment, and actual nature of the payment.

Salary Versus Distribution

Business owners often receive more than one type of payment from their companies.

Payments may include:

• Wages;
• Salary;
• Guaranteed payments;
• Member distributions;
• Draws;
• Loan repayments;
• Expense reimbursements; or
• Management fees.

A creditor may argue that a payment labeled as salary is actually a distribution, while the debtor may argue the opposite. The distinction can matter because Texas wage protections and charging-order rights are different legal concepts.

See Texas Wage Garnishment.

Can the LLC Stop Making Distributions?

Possibly, depending on the governing company agreement, fiduciary duties, business purpose, tax obligations, and other law.

A charging order does not necessarily require the company to make distributions that it otherwise would not make.

But artificial manipulation designed solely to evade a creditor can create litigation over:

• Fraudulent transfers;
• Sham compensation;
• Improper distributions to others;
• Alter-ego theories;
• Breach of fiduciary duty; and
• Other equitable claims.

Business decisions should remain commercially defensible.

Charging Orders and Single-Member LLCs

Texas Section 101.112 does not distinguish between single-member and multi-member LLCs in its exclusive-remedy language.

That statutory structure is significant because some states treat single-member LLCs differently.

Texas law should still be analyzed together with bankruptcy law, fraudulent-transfer law, and any other remedies the creditor may possess against the debtor personally.

Charging Orders Against General Partnership Interests

Texas Business Organizations Code Section 152.308 provides a similar charging-order regime for general partnership interests.

The official statute is available through the Texas Business Organizations Code Chapter 152.

The statute provides that the charging order constitutes a lien on the partnership interest and is the exclusive remedy by which a judgment creditor of a partner or owner may satisfy a judgment out of that partnership interest.

Charging Orders Against Limited Partnership Interests

Texas Business Organizations Code Section 153.256 applies a similar framework to limited partnership interests.

The official statute is available through the Texas Business Organizations Code Chapter 153.

Again, the creditor generally receives distribution rights associated with the charged interest but does not gain possession of partnership property merely through the charging order.

Why Is the Charging Order Called the “Exclusive Remedy”?

The exclusive-remedy language is designed to protect the entity and other owners from having a member’s personal creditor directly disrupt company ownership and operations.

For LLCs, Section 101.112 expressly states that entry of a charging order is the exclusive remedy by which a judgment creditor may satisfy a judgment out of the membership interest.

That does not make the debtor immune from all collection. The creditor may still pursue other nonexempt property owned by the debtor personally, including:

• Bank accounts;
• Nonexempt real estate;
• Investment accounts;
• Receivables personally owned;
• Other business interests;
• Nonexempt personal property; and
• Other lawful targets.

Charging Orders and Turnover Orders

A creditor may seek turnover relief against many types of nonexempt property, but Texas charging-order statutes can limit how an ownership interest itself is reached.

A turnover order should not be used to bypass an exclusive charging-order remedy and simply hand over LLC property or management rights that the judgment debtor does not personally own.

See Turnover Orders.

Charging Orders and Receiverships

Receivership can create additional questions where the debtor owns a business interest.

A receiver may be appointed to collect nonexempt property, but the scope of the receiver’s authority should remain consistent with charging-order protections and entity law.

See Receiverships.

Can a Creditor Foreclose the Charging Order?

For Texas LLCs, general partnerships, and limited partnerships, the statutes discussed above expressly provide that the charging-order lien may not be foreclosed under the Business Organizations Code or any other law.

This is an important Texas protection and should distinguish these pages from generic national content that describes foreclosure of charging-order liens as universally available.

Can a Creditor Force a Distribution?

A charging order generally redirects distributions that are otherwise payable. It does not necessarily authorize the creditor to force the company to make a distribution that the company is not otherwise required to make.

The company agreement, governing law, fiduciary duties, tax consequences, and actual business practices matter.

Can the Creditor Get Information About the LLC?

Potentially, through post-judgment discovery.

A creditor may seek:

• Company agreements;
• Tax returns;
• K-1s;
• Distribution histories;
• Ownership records;
• Bank records;
• Financial statements;
• Member loan records;
• Compensation records; and
• Related-party transactions.

See Post-Judgment Discovery.

Charging Orders and Settlement

A charging order can increase settlement pressure without giving the creditor direct control of the entity.

Settlement may include:

• Release of the charging order;
• Discounted payoff;
• Installment payment;
• Release of related liens;
• Resolution of personal guarantees;
• Confidentiality;
• Satisfaction of judgment; and
• Dismissal of post-judgment proceedings.

The release should specifically identify the charging order and entity interest.

How Ridgely Davis Law Approaches Charging Orders

We begin by determining exactly what the debtor owns and what the creditor is actually entitled to reach.

Our review may include:

• Judgment debtor identity;
• Entity type;
• Ownership percentage;
• Company agreement;
• Distribution rights;
• Wages versus distributions;
• Other member rights;
• Post-judgment discovery;
• Turnover requests;
• Receivership scope;
• Other nonexempt assets;
• Fraudulent-transfer issues;
• Settlement; and
• Bankruptcy implications where appropriate.

A charging order is powerful, but it is narrower than ownership of the company itself.

1. What is a charging order?

It is a court order placing a lien on a debtor’s LLC or partnership interest and redirecting qualifying distributions toward a judgment.

2. Does the creditor become an LLC member?

No, not merely because a charging order is entered.

3. Can the creditor vote my membership interest?

Not through the charging order itself.

4. Can the creditor manage the LLC?

No, not merely because of the charging order.

5. Can the creditor seize the LLC bank account?

Not based solely on a personal judgment against a member and a charging order.

6. Can the creditor seize LLC equipment?

Not through the charging order merely because the debtor owns an LLC interest.

7. What does the creditor get?

The statutory right to receive distributions that would otherwise be payable to the judgment debtor, subject to the order and law.

8. Can the charging order be foreclosed?

Texas Sections 101.112, 152.308, and 153.256 provide that the charging-order lien may not be foreclosed.

9. Is charging order the exclusive remedy?

For the ownership interest itself, the cited Texas statutes expressly provide exclusive-remedy protection.

10. Does that mean the debtor is judgment-proof?

No. Other nonexempt assets can still be pursued.

11. Can the LLC stop distributions?

Potentially, depending on legitimate business decisions, governing documents, and law.

12. Can the company pay me salary instead?

Compensation should reflect genuine services and commercial reality; sham reclassification can create litigation.

13. Does Texas protect single-member LLCs?

Section 101.112 does not create a separate single-member exception in its charging-order language.

14. Do partnerships have charging orders?

Yes. Texas Sections 152.308 and 153.256 provide similar remedies for general and limited partnerships.

15. Can a creditor use turnover instead?

Turnover law may apply to other nonexempt assets, but it should not bypass statutory charging-order protections for the ownership interest itself.

16. Can a receiver take over the LLC?

A receiver’s authority should remain limited by the court order, entity law, and charging-order protections.

17. Can the creditor inspect company records?

Potentially through proper post-judgment discovery.

18. Can a charging order be settled?

Yes. Settlement can include release of the charging order and satisfaction of judgment.

19. Does bankruptcy affect a charging order?

Potentially. Bankruptcy can materially affect judgment enforcement and ownership interests.

20. When should I contact Ridgely Davis Law?

When a creditor seeks a charging order, turnover order, receiver, or other relief against a business ownership interest.

Continue Your Research

• Business Debt with Personal Guarantees
• Promissory Note Lawsuits
• SBA Loan Lawsuits
• Merchant Cash Advance Lawsuits
• Equipment Financing Lawsuits
• What to Do If You Were Just Served
• Texas Answer Deadline
• Filing an Answer
• Discovery in Texas Debt Lawsuits
• Summary Judgment in Texas Debt Lawsuits
• Settling a Texas Debt Lawsuit
• Mediation in Texas Debt Lawsuits
• Standing to Sue
• Assignment of Debt
• Business Records Affidavits
• Payment as a Defense
• Understanding Judgments
• Post-Judgment Discovery
• Bank Account Seizure
• Can Bankruptcy Stop a Debt Lawsuit?