If you win a judgment in Texas, collecting it is a different battle.
Bank accounts can be garnished.
Non-exempt property can be seized.
Receivers can be appointed.
But what happens when the debtor owns an LLC membership interest?
That is where the Texas “charging order” comes in.
What Is a Charging Order?
Under Texas law, a judgment creditor cannot simply “take over” a debtor’s LLC ownership interest. Instead, the creditor may seek a charging order against the debtor’s membership interest.
The governing statute is:
Tex. Bus. Orgs. Code § 101.112(a):
“On application to a court of competent jurisdiction by a judgment creditor of a member, the court may charge the membership interest of the member with payment of the unsatisfied amount of the judgment.”
This means the creditor can intercept distributionsthat would otherwise go to the debtor-member.
But the creditor does not automatically become a member.
The Charging Order Is the Exclusive Remedy
Texas law is particularly protective of LLC structures.
Tex. Bus. Orgs. Code § 101.112(d):
“This section provides the exclusive remedy by which a judgment creditor of a member or a member’s assignee may satisfy a judgment out of the membership interest of the member.”
That word — exclusive — matters.
It generally means:
- No foreclosure of the membership interest
- No forced sale of the LLC assets
- No seizure of management rights
- No voting rights
The creditor is limited to whatever distributions are actually made.
If the LLC never makes distributions? The creditor waits.
What Rights Does the Creditor Actually Get?
Under § 101.112(c):
“A charging order constitutes a lien on the judgment debtor’s membership interest and requires the limited liability company to pay over to the judgment creditor any distribution that would otherwise be paid to the judgment debtor.”
Important distinctions:
A charging order:
- Creates a lien
- Redirects distributions
- Does not grant governance rights
- Does not make the creditor a member
This preserves the expectations of the other members.
Why Texas Uses Charging Orders
Charging orders balance competing policies:
- Creditor rights – Judgments must be collectible.
- Business stability – Non-debtor members should not be forced into business with an outside creditor.
Without charging order protections, one member’s personal debt could destabilize the entire company.
Texas strongly favors entity separateness — something you already explore in your veil-piercing content.
Single-Member LLCs: A Complication
In multi-member LLCs, the charging order is clearly exclusive.
Single-member LLCs raise harder questions.
Some jurisdictions allow foreclosure in single-member entities because no innocent members exist. Texas courts have not created broad exceptions in the statute, and § 101.112 uses strong “exclusive remedy” language.
However, aggressive creditors may:
- Seek turnover relief under Tex. Civ. Prac. & Rem. Code § 31.002
- Argue fraudulent transfer
- Attempt receivership
- Attack sham entities
This becomes litigation strategy — not simple statutory application.
Interaction with Turnover Orders and Receivers
Texas turnover law provides:
Tex. Civ. Prac. & Rem. Code § 31.002(a):
A judgment creditor is entitled to aid from a court through injunction or other means to reach property that cannot readily be attached or levied on by ordinary legal process.
But § 101.112(d)’s “exclusive remedy” language typically limits creditors to charging orders — not forced liquidation of LLC interests.
That tension is where real litigation happens.
Why This Matters for Asset Protection
Many business owners form LLCs assuming:
“If I get sued personally, my LLC is safe.”
That is only partially true.
The LLC’s assets are generally protected from personal creditors — but distributions are not.
If the LLC regularly distributes profits, those profits can be intercepted through a charging order.
If the LLC retains earnings, creditors may wait indefinitely.
This creates strategic planning considerations.
Practical Takeaways
For Creditors:
- Charging order = leverage, not control.
- Investigate whether distributions are being made.
- Consider fraudulent transfer if distributions stop suddenly.
For Debtors:
- Do not manipulate distributions after a charging order — that invites litigation.
- Maintain clean books and formalities.
- Understand the difference between ownership and distribution rights.
For Business Partners:
- Charging orders protect you from being forced into business with a creditor.
- Operating agreements should address distribution policy carefully.
Final Thought
Texas LLC law is designed to:
- Respect entity separateness
- Protect innocent members
- Allow collection — but in a limited way
The charging order is a surgical remedy, not a sledgehammer.
And if you are litigating creditor-debtor disputes in Texas, you ignore it at your peril.
At David C. Barsalou, Attorney at Law, PLLC, we help clients navigate business, family, tax, estate planning, and real estate matters ranging from document drafting to litigation with clarity and confidence. If you’d like guidance on your situation, schedule a consultation today. Call us at (713) 397-4678, email barsalou.law@gmail.com, or reach us through our Contact Page. We’re here to help you take the next step.
