COLLECTING A JUDGMENT FROM A VIRGINIA LLC – EXPLAINING JUDGMENT LIENS AND CHARGING ORDERS.

We at Fox and Moghul often receive queries by individuals, companies (LLCs, LP, S/C Corps) either facing an imminent judgment, or having already been subjected to a civil judgment in a court of law. In such cases, it is important for the judgment-debtor to be aware of the following key issues.

When an individual receives a judgment the outcome of the court case has been decided. Once a judgement is granted a judgement creditor seeks to enforce this judgement. The aid of the court allows for enforcement techniques to receive payment, for example, attachments and garnishments. Payment on a judgement is important because a judgement becomes public record and will also appear on credit reports.

What is a Judgement Lien?

A judgement lien is classified as a judicial lien which means that a creditor is able to foreclose on the property to which the judgement lien is attached.

Judgment Liens Attached to Real Estate

For a judgement lien to attach to real estate, the lien will have to appear in county land records from when it was originally filed in the land records. In the commonwealth of Virginia, judgements will automatically be filed in the land records of a county.

In Virginia, a judgment lien can be attached to real estate, and not to personal property as stated by Virginia Code §8.01-251(c), §8.01-458 and §8.01-446. The judgement liens that are attached to real estate are county specific. This means a judgement lien will only attach to the real estate property in the county where it was filed. Once the judgement is in the county land records, the judgement lien is then attached to any real estate that the debtor owns in that county. The judgement incurs interest at the rate of the judgement. The judgement rate in the commonwealth of Virginia is 6%. Lastly, the creditor can foreclose and the property to which the judgement lien is attached can be auctioned through a court process.

Judgment Liens Attached to Personal Property

For a judgement lien to attach to personal property, the type of personal property is important in determining the attachment of the judgement lien. For example, types of personal property include homes and vehicles. Personal property and ownership go hand in hand which is why it is more difficult to attach a judgement lien to personal property since ownership can switch between individuals. In order for the lien to attach, the creditor for the judgement lien has to know the identity of the individual (s) and the location of the property before the lien attaches.

Conclusion of Judgement Liens

In the commonwealth of Virginia, judgement liens are only enforced for a total of twenty years. The time frame can be extended but a motion with the court would have to be filed before the expiration date that is listed on the original judgement or on a previous extension of the judgement lien.

What is an LLC Charging Order and How Does it Work in the Judgement Context?

Collections with LLCs follow a different framework under the law. According to Virginia Code § 13.1-1041.1. a charging order is “a member’s transferable interest subject to charging order.” For the creditor whose judgement lien is attached to a limited liability company, the charging order will satisfy the unpaid debts of the debtor. The charging order restricts creditors from seizing the limited liability company’s assets and also ensures that creditors can not pressure a limited liability company to distribute payment to additional liabilities.

VA Statute on Charging Orders 

In Virginia, a charging order is a lien on an individual’s membership in a transferable interest in an LLC, not a transfer. The only time a transfer could occur is if the judgement creditor forecloses on the lien. The Virginia LLC Act requires that once a charging order was entered, the judgement creditor can collect from the judgement of the member’s transferable interest.

How to Deter Judgment Creditors  

In order to prevent a judgement lien being filed against you, one can set up a payment plan, dispute the debt or file for bankruptcy. If a judgement lien was already filed against you, one can file a suit in court to vacate the judgement, pay the judgement through a satisfaction of judgement by the court or file for bankruptcy.

For more information on this complex issue, please contact our office for a consult.