1. The creditor must work and pay to win the lawsuit.
2. If the creditor wins litigation, he’s left with the effort of collecting the judgment.
3. The creditor can only obtain a charging order against your interest in the LLC. This means that the creditor is “next in line” for any LLC distributions that were due you.
4. The manager of the LLC decides that he won’t release any distributions from the LLC.
5. This causes the creditor to be liable for all taxes as if he’s collected from your interest in the LLC–but he doesn’t get a penny. In other words, he must pay taxes as if he’s been collecting without receiving a dime.
6. The creditor realizes that he can’t force distributions to be released. He can’t foreclose against your LLC interest.