By Stephen J. Muhonen, Creditor’s Rights Attorney, Racine Olson, PLLP
As a judgment creditor (holder of judgment entered in your favor), perhaps you have experienced the thrill of obtaining the judgment, and the agony of attempting to collect thereon. The judgment debtor (person or entity for which judgment was entered against) refuses to voluntarily pay up and collection efforts seem to have hit a dead end. The judgment has been recorded in the county where the judgment debtor resides, but unfortunately there is no real property to be located that is in the judgment debtor’s name. Garnishment of bank accounts and wages have not been fruitful, and all the judgment debtor’s personal property is either encumbered by a senior lien holder or not worth the expense that would have to be fronted to have the Sheriff seize and sell at auction. I have found that even though I may have exhausted these referenced options and come up with nothing, there is yet another arrow in the “collections quiver” called a “charging order” that can be very helpful.
If the judgment entered is against an individual who is a member of a limited liability company (LLC), Idaho Code §30-25-503 provides judgment creditors another option in their attempts to satisfy their judgment. In sum, this statute provides a mechanism for a judgment creditor to be able to go to the court, seeking the court’s entry of a Charging Order, that essentially tells an LLC to not pay the judgment debtor LLC member their distribution, but rather, to pay it to the judgment creditor. The statute reads in part,
(a) On application by a judgment creditor of a member or transferee, a court may enter a charging order against the transferable interest of the judgment debtor for the unsatisfied amount of the judgment. Except as otherwise provided in subsection (f) of this section, a charging order constitutes a lien on a judgment debtor’s transferable interest and requires the limited liability company to pay over to the person to which the charging order was issued any distribution that otherwise would be paid to the judgment debtor.
This statute goes on to provide that to give the charging order some teeth, the court can appoint a receiver and can also make “other orders necessary to give effect to the charging order.” These “other order” could mean the requirement to turn over documents pertaining to the financial affairs of the LLC as they relate to distributions or anticipated distributions to the member/debtor. In the event it appears the judgment will not be satisfied within a reasonable time, a judgment creditor can also seek the court’s order foreclosing on the charging order lien and obtain the transferable interests of the member/debtor, though the judgment creditor does not then become a member of the LLC.
In the event the charging order lien that is foreclosed upon is against the sole member of a LLC, the court shall confirm the sale, and the purchaser (judgment creditor) at the sale obtains the member/debtor’s entire interest, not just the transferable interest. Additionally, the purchaser then becomes a member and the member/debtor who was foreclosed upon is dissociated as a member. This statute is the exclusive means for a judgment creditor to enforce a judgment against a member/debtor to satisfy the judgment from the judgment debtor’s transferable interest.
If you or someone you know needs assistance with collecting upon a judgment, please give Stephen Muhonen at Racine Olson, PLLP a call at 208-232-6101. You can also email Stephen at steve@racineolson.com