In 2007, John Campbell borrowed $305,000 from Vision Bank. The loan was collateralized by a mortgage on certain of Campbell’s real property. Vision Bank then merged with SE Property Holdings, LLC (“SEPH”). In 2013, SEPH sued Campbell and won a judgment for $317,135 against Campbell on September 9, 2013. Next, SEPH applied to the court for a charging order against Campbell’s interest in certain LLC interests. This was granted on October 23, 2013. The charging order stated in part:
“IT IS ORDERED that a lien is charged against the financial interests of [the Debtor] in the [LLCs] in the amount of $317,135.00, being the final judgment of September 9, 2013, rendered in favor of [SEPH] and against [the Debtor], plus accrued interest and costs, and that [the LLCs] are Ordered to distribute to [SEPH] any income, officer’s fees, bonuses, distributions, salaries or dividends paid or otherwise conveyed to [the Debtor] by reason of any interest he owns in the [LLCs] until [SEPH] is satisfied in full.”
The charging order also required Campbell’s LLCs to notify SEPH each time that a distribution to Campbell was made. The following January 21, 2014, the court entered a second similar charging order against other of Campbell’s LLC interests.
Flash forward to February 12, 2026. By this time, SEPH has apparently assigned its judgment to Radiance Capital Receivables Twelve LLC. For his part, Campbell has landed in personal bankruptcy proceedings. Within the bankruptcy proceedings, Radiance Capital has filed an adversary action against Campbell to determine that Campbell cannot discharge the Radiance Capital judgment.
Both Campbell and Radiance Capital moved for the entry of summary judgment. This resulted in the opinion of the U.S. Bankruptcy Court for the Southern District of New York in Radiance Capital Receivables Twelve LLC v. Campbell (In re Campbell), 2026 WL 84544 (Bk.S.D.N.Y., Jan. 12, 2026).
The court noted that between June, 2017, and December, 2022, two of Campbell’s LLCs made 35 distributions which Radiance Capital claimed was in violation of the charging orders. All but one of the transfers was made by an LLC named Whigham Place LLC. That LLC owned a commercial building in Alabama and generated about $650,000 or so in 2019 and 2020 from leasing its commercial building. Twelve of the transfers were made directly to Campbell in violation of the charging order.
There was a dispute as to whether Whigham Place LLC was owned by Campbell or by a company called Clairise Court LLC which Campbell owned. On this issue, Campbell’s own bankruptcy filing contradicted himself on the issue. But, as the court noted, it didn’t really matter since either way Campbell was in control of Whigham Place LLC. Eight of the transfers were made by Whigham Place LLC to Clairise Court LLC. Campbell claimed that these transfers were his salary from Whigham Place LLC that he contributed to Clairise Court LLC.
The other transfer was made by Antilles GP LLC, which Campbell also owned. Antilles was a Delaware LLC and Campbell claimed that the Alabama court did not have jurisdiction to issue a charging order against his interest in that company, but that didn’t matter either since Campbell didn’t object to the charging order at the time or later appeal the charging order.
Basically, Campbell shuffled money out of Whigham Place LLC and into other Campbell companies where he either paid himself or the company transferred money to pay off his credit cards which were often used for purely personal purposes.
The court first considered whether Campbell’s conduct amounted to “actual fraud” under Bankruptcy Code § 523(a)(2)(A). Here, Radiance Capital argued that Campbell’s transfers of fund violated the Alabama fraudulent transfer act which effectively created a new debt for the fraudulent transfer to Radiance Capital. There were some precedential opinions which supported Radiance Capital’s position, but those were in cases where the court had awarded damages to a creditor on some theory or another in addition to avoiding the transfers. That had not happened here, and so this theory of Radiance Capital failed.
The next theory advanced by Radiance Capital was that Campbell had caused a “willful and malicious” injury under Bankruptcy Code § 523(a)(6). The theory here was that Campbell’s violation of the charging orders was a “willful” act by Campbell which damaged Radiance Capital’s ability to enforce the judgment. This test only looks at whether the debtor intended the consequences of his actions “even in the absence of personal hatred, spite or ill-will.” There was precedential opinions to the effect that a debtor’s conduct could meet this standard by violating a court order. This is why, for instance, that monetary sanctions issued against a party in litigation are nondischargeable.
The facts surrounding Campbell and his LLCs were that he violated the charging orders and thus was subject to contempt. The charging orders required Campbell to turn over distributions to the judgment creditor and to advise his creditors that distributions were being there. By failing to turn over those distributions and not advising that distributions had been made, Campbell willfully violated the charging orders. Other transfers from Campbell’s LLCs for things like paying for credit cards or serving as his personal bank account similarly violated the charging orders.
To avoid these results, Campbell made a number of arguments. He claimed that the distributions were really just his salary, but there wasn’t any evidence that he was employed by his LLCs. Campbell also claimed that an IRS lien against his assets superseded the charging orders, but the existence of an IRS lien did not negate the charging orders.
But the bankruptcy court did not find that Campbell had engaged in willful and malicious conduct in violating the charging orders. Instead, the bankruptcy court modified the automatic bankruptcy stay to allow the Alabama court to determine if Campbell had violated its charging orders and whether sanctions were warranted. In other words, the Alabama court would determine whether Campbell had willfully and maliciously violated the charging orders, and that determination would then guide the bankruptcy court as to whether Campbell’s debt to Radiance Capital would be excepted from discharge.
The next issue before the bankruptcy court was whether the liens created upon Campbell’s LLC interests would survive Campbell’s discharge. The general rule here is that liens “pass through bankruptcy unaffected” unless those liens are avoided by the bankruptcy court. This applies to charging order liens with as much strength as other types of liens. Also, Campbell had previously moved the bankruptcy court to avoid the charging order liens, but the bankruptcy court had denied that motion.
ANALYSIS
What happens when a lien survives bankruptcy, but the debtor is awarded a discharge? The result may seem counterintuitive since the obligation supporting the lien has disappeared.
The result is that the creditor holding the lien may foreclose upon the lien, have the asset subject to the lien liquidated, and take the proceeds of that liquidation. However, the creditor cannot seek a deficiency judgment if the asset sale does not fully satisfy the debt ― this is because the debt has been discharged.
The bigger issue presented by this case is whether a violation of a charging order should result in a denial of the debtor’s discharge. The answer is: It depends on whether it was the debtor who caused the violation of the charging order.
Although, at least as of the time of this writing, Campbell has not been adjudicated to be in contempt of the charging order, the bankruptcy court made clear that if Campbell was in such contempt then he would likely lose his discharge. That is largely because the Campbell was not only the debtor, but he also controlled the LLCs that violated the charging orders.
But let’s take a counterfactual hypothetical. Let’s say that a debtor is only a 10% member of a manager-managed LLC and the debtor is not a manager. In other words, the debtor has no control over the LLC. A charging order is issued against debtor’s LLC interest which compels the LLC to make distributions to the creditor. But the LLC’s management blows off the charging order and continues to pay the debtor directly. In that case, the charging order is violated (and the LLC could theoretically be held in contempt), but the debtor did not engage in any willful or malicious conduct because of the LLC’s actions.
A charging order is not only directed at the LLCs in which the debtor has an interest, but it is also binding upon the debtor. Thus, if the debtor were to receive a distribution in violation of a charging order, the debtor has an affirmative obligation to turn the distribution over to the creditor. If the debtor does not turn over the distribution, then the debtor himself is in contempt without relation to what the LLCs do or not do, or even who owns and controls them. But this still requires a finding of contempt, obvious though it might be in a given case.
You can find statements on the internet to the effect that a charging order is worthless because there are so many ways for debtors to get around it. Suggestions are made that a debtor can simply take loans from the LLC or, as Campbell did here, have credit card payments made and the like. This is a fresh pile of marketing manure. So long as the charging order is even moderately well-drafted, the debtor will not be able to get any benefit from the assets of the LLC that is subject to a charging order, at least without risking a contempt finding, a finding that the debt has not been discharge, or even denial of the debtor’s discharge.
As here.
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