A recent LLC decision by the South Carolina Supreme Court caught my attention yesterday over at the LLC Law Monitor. In South Carolina a judgment creditor of a member of a LLC may foreclose on the debtor’s membership interest. See S.C. Code Ann § 33-44-504(b).
In Texas, however, a judgment creditor’s exclusive remedy is entry of a charing order. See Tex. Bus. & Org. Code § 101.112(d). Texas specifically prohibits the foreclosure of a membership interest subject to a charging order. See id. at § 101.112(c) (stating “[t]he charging order lien may not be foreclosed on under this code or any other law”).
For the uninitiated, in Texas, “[a] charging order constitutes a lien on the judgment debtor’s membership interest.” Id. This means that the judgment creditor only has the right to receive whatever distributions the judgment debtor is entitled to. In the case of a single-member LLC, that may never happen.