Delaware LLC creditor protection: charging orders, veil piercing, and exemptions

Delaware has the best charging order statute in America.

In 2024 a creditor took an entire Delaware LLC anyway, and the statute never came up.

Both of those are true, and the space between them is the only part of Delaware asset protection worth your time. Everything else is brochure.

The statute is genuinely excellent

Start with what Delaware actually gives you, because it is real.

A judgment creditor who comes after your membership interest gets a charging order and nothing else. No attachment. No garnishment. No foreclosure. No other legal or equitable remedy of any kind.

The creditor stands where you stood in line for distributions, and if no distribution ever comes, the creditor collects nothing.

Suing you does not open the company’s bank account either. A creditor has no right to reach the property the LLC owns.

And then the five words most states leave out: whether the limited liability company has 1 member or more than 1 member.

Source: 6 Del. C. § 18-703(d), (e), (f).

A charging order statute that goes silent on single-member LLCs is a statute with a hole in it. Delaware wrote the answer into the text.

Most states never say it. Courts have used that silence to reason that the charging order exists to protect innocent co-owners, so where there are none it protects nobody. That argument has won.

It cannot win here.

Delaware fixed itself in 2013, and the internet still has not noticed

For a decade Delaware had a problem, and it was serious.

In 2003 a bankruptcy court handed a single member’s entire interest to the trustee, who then ran the company and sold its real estate out from under the owner. That case is In re Albright and courts followed it.

In 2006 a federal court went further and held that two sections of the Delaware LLC Act simply do not apply to single-member LLCs at all. Another court used Delaware law to put a Chapter 11 trustee in control of one outright.

Delaware answered all of it in a single bill.

House Bill 126, effective August 1, 2013, added the one-member-or-more language to the charging order section, added a new provision confirming that the Act applies whether an LLC has one member or many, and separately confirmed that fiduciary duties exist even when the agreement is silent about them.

Three known weaknesses. One statute. One day.

Source: 79 Del. Laws c. 74.

If what you are reading about Delaware single-member protection does not mention 2013, it is describing a statute that no longer exists.

That matters more than it sounds. The years between 2003 and 2013 were exactly when the question was hot, so that is when the most commentary got written, by serious firms, and it is all still online and all still indexed.

A creditor took the whole company

Now the part the statute cannot fix.

A Hong Kong company owed $185 million on a judgment. It owned a Delaware LLC. A federal court ordered it to hand the entire membership interest to the creditor, and the Second Circuit affirmed.

Not a charging order. Not a lien on future distributions. The company itself, signed over.

The debtor argued precisely what you would argue: Delaware law makes the charging order the exclusive remedy, so turnover is off the table.

It did not work, and the reason had nothing to do with the merits. A creditor enforcing a federal judgment uses the collection procedures of the state where the court sits. That court sat in New York. New York lets a judge order turnover of any assignable property, and New York’s own LLC statute allows charging orders without making them exclusive.

Different courthouse, different answer, same Delaware LLC.

Source: 245 Park Member LLC v. HNA Group (International) Co., 2024 WL 1506798 (2d Cir. Apr. 8, 2024).

Delaware’s charging order statute is a defense you raise in a Delaware proceeding. It is not a property of the company that travels with it into whatever court your creditor can reach you in.

Florida gets to the same destination by a different road. A membership interest is intangible property that sits with its owner, so a Florida court applies Florida law to a Florida resident’s interest, and the Wyoming or Nevada or Delaware statute never enters the room.

Which reframes the whole question of picking a state. You are not buying protection. You are placing a bet on where you will be sued, and your creditor picks the courthouse.

If you live and work in one state and formed in another, your own state’s page is the one that decides your case. Read that one.

The charging order locks the front door. This is the back door.

In 2021 the Court of Chancery recognized reverse veil piercing for the first time.

Creditors holding a $57.6 million judgment that was not being paid went after subsidiaries of the company that owed them. The court let the claim proceed.

The rule is narrow on its face. Outsiders only, egregious facts only, and only where no innocent third party gets hurt. The court described the point as deterring owners of closely held companies from shuffling assets among entities they control to dodge a judgment.

Source: Manichaean Capital, LLC v. Exela Technologies, Inc., 251 A.3d 694 (Del. Ch. 2021).

Now hold that next to § 18-703 and watch the two of them not collide.

The charging order statute limits what a creditor can do to your interest. Reverse veil piercing does not touch your interest. It goes at the company, on the theory that you and the company are the same thing. The exclusivity language answers one attack and is silent on the other.

Moving assets into an LLC after the claim shows up does not buy you charging order protection, because the charging order is not the attack that is coming.

The attack is reverse piercing. And the facts that make it available are the same facts that make the transfer look like shuffling.

The charging order protects an owner who funded the company and then left it alone. It does nothing for an owner who used it as a place to put things.

Three more ways around, and Delaware has tested none of them

The charging order is not the only tool a creditor has.

Receivership. Some states let a court appoint a receiver over a charged interest even where the statute says exclusive. Delaware’s text bars other legal and equitable remedies in language that should reach it.

Dissolution as pressure. A creditor cannot petition for judicial dissolution under the statute. But Chancery has ordered dissolution under its general equity powers for a party with no statutory standing at all, which is a door standing open.

Voting rights. Practitioners report creditors reaching a member’s right to replace the manager. Control the manager and you control the distributions the charging order could not compel.

The formalities advice you were given is wrong here

Delaware asks two questions before it pierces a veil. Did the company and the owner operate as one economic unit, and is there an overall element of injustice.

The factors are insolvency, undercapitalization, commingled funds, missing formalities, and whether the company was a facade. None of them decides it alone. The injustice has to be there every time, and it has to live in the use of the entity itself rather than in the underlying bad act.

It gets threatened constantly and granted rarely. How the doctrine works generally is at piercing the LLC veil.

Here is the part nobody tells you.

Chancery has observed that most single-member LLCs do not keep many formalities, for the excellent reason that the LLC Act barely requires any.

Missing your annual meeting is not a piercing risk for an entity the statute never told you to hold one.

That advice came from corporate law and got copied onto LLCs by people selling formation packages. Formalities are one factor out of five, and no combination of factors pierces anything without the injustice element.

Commingling is still a real problem. Sloppy records are still a real problem. Skipping ceremonies the statute never required is a different thing, and being told otherwise for years is why people spend money on minute books nobody will ever read.

Ten LLCs run from one checkbook is one LLC

Delaware has not adopted enterprise liability, the doctrine that lets a creditor of one company reach a sister company under the same ownership.

Other states are adopting it. Pennsylvania’s Supreme Court did recently, and the test is common ownership plus a common administrative nexus at the parent.

Read that test again and notice who it describes.

Standard asset protection advice is one entity per property. Take that advice to ten properties and you have ten LLCs under one holding company, one bookkeeper, one bank, one management company, one insurance broker, and one person signing everything.

Common ownership. Common administrative nexus. That is not a coincidence, that is the test, recited back.

The real cost of isolation is not the filing fees. It is the discipline required to keep ten entities from reading as one, and almost nobody budgets for it.

Separate books. Separate accounts. Leases and management agreements on arm’s length terms. Separate policies.

An investor who forms ten LLCs and runs them out of one account has purchased ten filing fees and one entity.

Delaware may never adopt the doctrine. The state where the building sits and the tenant sues might.

You did not just choose a court. You agreed to be sued in it.

The Court of Chancery is the real reason sophisticated parties pick Delaware. Specialist judges, no juries, and more LLC case law than everywhere else combined. That part is not marketing. How much the choice of court matters is the thing most state comparisons skip entirely.

The part that does not make the pitch deck is that the same choice hands Delaware jurisdiction over people who have never set foot there.

Delaware’s Act is an implied consent statute. Managers named in the agreement consent to personal jurisdiction in Delaware. So does anyone who participates materially in running the company. Taking the role is the consent.

Source: 6 Del. C. § 18-109(a).

It reaches further than it sounds, in two directions.

It is not limited to fiduciary claims. Chancery follows the Delaware Supreme Court’s plain reading of the corporate equivalent and applies it to tort claims relating to the business.

And it does not care about your title. In 2019 Chancery reached a person who ran two manager-managed LLCs without being the formal manager of either, and rejected the argument that acting as somebody else’s agent provided cover.

You can avoid the manager label in every document and still be delivered to Delaware by your own conduct.

What you can draft around, and what you cannot. A forum selection clause moves manager disputes out of Delaware. The Supreme Court read the statute permissively on freedom of contract grounds and the legislature left that alone.

What the legislature did add is one sentence protecting one person. A member who is not a manager cannot waive the right to sue in Delaware on matters relating to the organization or internal affairs of the company.

With an exception written into the same sentence. It does not apply where the parties agreed to arbitrate.

Every market LLC agreement has an arbitration clause, sold as a cost and speed measure. In Delaware it is also the clause that deletes the only structural protection a passive investor has.

Not a reason to refuse arbitration. A reason to negotiate the seat and the rules instead of accepting the paragraph.

Source: 6 Del. C. § 18-109(d).

A first-rate LLC state and a second-rate trust state

Delaware was one of the first two states to allow a self-settled asset protection trust, back in 1997. You can be a discretionary beneficiary of your own irrevocable trust with a Delaware trustee, and a creditor has to prove by clear and convincing evidence that funding it was a fraudulent transfer.

Then the number that decides everything: the seasoning period is four years.

Nevada uses two. South Dakota uses two. Ohio and Tennessee use eighteen months.

Four years is the longest of any serious DAPT state, and Delaware’s exception creditors are broader too, still reaching divorcing spouses, child support claims, and certain tort creditors after the clock has run.

The Delaware brand does not transfer across chapters of Delaware law.

Choosing Delaware for the LLC is usually defensible. Assuming Delaware is therefore the right trust jurisdiction is a category error, and this particular error is priced in years of exposure.

Entity law and trust law are two different products from the same state, and Delaware is best in class at exactly one of them.

Two mechanics worth knowing before somebody sells you a Delaware trust.

If a creditor wins, the trust is defeated only as to that creditor’s claim, so each one has to sue separately. Against a crowd, that is real protection.

And unless the creditor proves the trustee acted in bad faith, the trustee pays the cost of the fight out of the trust. A determined creditor can grind down the assets the trust exists to protect while losing every round. That number never makes it into the pitch.

Federal creditors including the IRS reach these assets regardless. So do minor children seeking support.

Source: 12 Del. C. §§ 3570 to 3576.

A 2023 amendment made spousal consent a usable planning step. The exception that ordinarily lets a spouse reach the trust does not apply where that spouse got specified disclosures and consented in writing. What those disclosures have to say is the entire value of the consent.

The deed matters more than the exemption

Two things before any number.

Delaware opts out of the federal bankruptcy exemptions. A Delaware debtor uses the Delaware list and does not get to pick the friendlier one.

Source: 10 Del. C. § 4914(a).

And the homestead exemption is $200,000, not the $125,000 published nearly everywhere you will look. It changed by legislation signed August 2, 2024, effective January 1, 2025. The same act raised the vehicle and tools of the trade exemptions to $25,000 each, on top of a separate $25,000 for personal property and non-residence real estate, applied to each debtor separately in a joint case.

Joint filers cannot double the homestead.

Source: 10 Del. C. § 4914(b), (c); 84 Del. Laws c. 329.

FindLaw says $125,000. The major exemption tables say $125,000. The statute has said $200,000 since January 2025.

Delaware also recognizes tenancy by the entireties, and property held that way can be exempt against a debt owed by only one spouse.

Which leads to the thing most couples get backwards.

For a married couple the entireties usually protect more than the homestead, and the two fail in opposite directions.

The homestead is a capped number that joint filers cannot double. Entireties protection has no cap. It defeats a creditor of one spouse completely, whatever the house is worth.

But entireties dies the moment there is a joint debt, which describes most mortgages and every jointly signed guaranty. It ends at divorce. It ends at death.

And it depends entirely on how title was taken, which was decided years ago at a closing table by somebody who was not thinking about creditors.

Your protection on the house is usually written on the deed, not in the exemption statute. And the day you both sign an obligation, you have handed a creditor a key the exemption cannot take back.

One consequence that reaches across this whole site. Advice to move the residence into an LLC has to answer for what that does. Entireties protection is destroyed, because the couple no longer holds the property. An exempt asset becomes an entity interest. And in Delaware the transfer itself is taxed, which is on the structure and cost page.

The bottom line

The statute is excellent and it is not portable. Delaware’s charging order protection is the strongest written in America, and it protects you in a Delaware proceeding. A creditor who sues you somewhere else is being handed a different rulebook.

Reverse piercing is the live threat, not foreclosure. Since 2021 a creditor with egregious facts can go at the company rather than the interest, and the charging order statute has nothing to say about it.

Timing decides everything. The charging order protects an owner who funded the company and left it alone. Assets moved in after a claim arises look like shuffling, and shuffling is what reverse piercing was recognized to punish.

Ten entities require ten sets of discipline. Common ownership plus one bookkeeper is the enterprise liability test, and more states adopt it every year.

Delaware is not your trust state. Four-year seasoning against Nevada’s two and Tennessee’s eighteen months, with broader exception creditors on top.

Check your deed before you check the exemption. For a married couple in Delaware, tenancy by the entireties usually does more work than the $200,000 homestead, and moving the house into an LLC destroys it.

What this page does not cover

What the statute decides when your operating agreement says nothing, and how far the agreement can go, is on the governance page.

Where the entity legally lives, series LLCs, anonymity, and the tax cost of moving property in or changing who owns it are on the structure and cost page.

Fees, forms, and deadlines are on the filing page.

Last verified July 2026.