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ULLCA 503(g) Exemptions

Exemption Code ULLCASection503gExemptions



503(g)

This [act] does not deprive any member or transferee of the benefit of any exemption law applicable to the transferable interest of the member or transferee.



Reporter's Comment to Subsection (g)

This subsection preserves otherwise applicable exemptions but does not create any. In re Foos, 405 B.R. 604, 609 (Bankr. N.D. Ohio 2009) (interpreting the comparable provision in UPA (1997) and stating, "it is clear that [the provision] does not create an exemption").

JayNote

The debtor's exemptions will usually be found in one of two forms: first, some states have so-called "wildcard exemptions" for a certain amount, say $10,000 or so, that allow a debtor to protect that much in property from the creditor and which could apply to the debtor's transferable interest; and, second, there are federal (in the form of the Federal Wage Garnishment Law ("FWGL")) and state laws that have the effect of exempting portions of a debtor's wages, and which might apply to the creditor's interception of distributions by way of a charging order, see U.S. v. Alexander. As to the latter, note that there is a dispute among LLC planners and litigators as to whether the debtor's transferable interest can ever be considered to be in the nature of "wages", but that is a much longer discussion.
For court opinions discussing the interplay of exemptions and charging orders click here.

Click here for a deeper dive into charging orders and exemptions

Charging orders and debtor exemption rights are treated as complementary across U.S. jurisdictions: while a charging order is typically the exclusive remedy for a judgment creditor to reach a debtor’s partnership or LLC interest, it does not override state or federal exemption laws, which statutes and courts expressly preserve. Under both state practice and Federal Rule of Civil Procedure 69(a), courts apply the relevant state charging-order regime, and those statutes commonly state that the remedy cannot be construed to deprive the debtor of applicable exemptions (illustrated with Texas and Delaware provisions). Substantively, a charging order attaches only to the debtor’s distributional interest, not to entity-owned assets—so entity property generally cannot be protected by personal exemptions, but an individual debtor may still assert exemptions in their own membership or partnership interest where the law allows. The document highlights how this plays out with specific exemptions: retirement-account and earnings protections can cap what a creditor may collect through distributions (e.g., garnishment limits and liberal construction of IRA exemptions), and tenancy-by-the-entireties ownership can bar charging orders in states recognizing that form of ownership (but not in states like Iowa that do not). Bankruptcy courts apply the same preservation principle, maintaining debtors’ exemption rights in LLC distributional interests. Procedurally, exemption burdens generally follow ordinary rules (creditor shows ownership; debtor proves exemption), and although charging orders are usually exclusive, courts and some statutes recognize limited exceptions—such as turnover/foreclosure-like remedies in sham or single-member LLC contexts—while still maintaining the baseline protection of exemption law.

EXEMPTION OPINIONS