UPDATED: July 2013
Each year, thousands of bankruptcy cases involve timeshares, and one of the most common questions asked of bankruptcy attorneys and trustees is: “What happens to my timeshare after I file for bankruptcy?”
There tends to be misinformation about timeshares and bankruptcy, perhaps because every bankruptcy case is different, as are timeshares and the maintenance fees associated with them. When you own a timeshare and file bankruptcy, here’s what you’re likely to face.
How are Timeshares Affected by Bankruptcy?
There are two types of timeshares:
- A timeshare in which you have real property ownership,
- A timeshare in which you have ownership interest that gives you the ability to use a property.
The way bankruptcy will affect your timeshare depends on the type, as well as the type of bankruptcy you’ll be filing.
Chapter 7 Bankruptcies
If you file a Chapter 7 bankruptcy, the timeshare is considered non-exempt property, and if you own the timeshare outright, you have two options: pay the value of the timeshare, or surrender it to the bankruptcy trustee, which will then try to sell it and use the proceeds to pay off your creditors.
Unfortunately, surrendering to the trustee doesn’t mean its guaranteed to be sold, as they will have just as difficult a time as you would trying to sell your timeshare. Because they are considered poor investments, they are typically difficult to sell during the bankruptcy process.
Chapter 13 Bankruptcies
If you’re filing a Chapter 13 bankruptcy, you’ll retain all of your assets, including the timeshare. However, you will be required to repay the value of the timeshare to your creditors over the life of the bankruptcy, which is 3 – 5 years.
In this case, you’re legally eligible to keep your timeshare, but you also must make the decision of whether or not your timeshare is an investment worth keeping.
Surrendering Your Timeshare During Bankruptcy
If you owe money on your timeshare or can’t afford the yearly maintenance fees, you can surrender your timeshare back to the lender during the bankruptcy process. This allows you to minimize the overall costs you’ll owe, and you won’t have any future liability toward the timeshare.
For most bankruptcy clients with timeshares, this tends to be the option they choose. Between the cost of yearly ownership and the time it takes to use timeshares, many clients simply don’t see their timeshares as a priority during or after bankruptcy.
Why Timeshares are Poor Investments
A while back I was attending a court hearing at the bankruptcy court while the bankruptcy trustee was questioning a person who had filed for bankruptcy. He asked this particular debtor if he had a timeshare.
The debtor replied that he did, and the trustee replied sarcastically, “I think owning a timeshare is a required qualification for filing bankruptcy!” While somewhat rude and definitely condescending, the trustee was bringing to the light the fact that many people own timeshares and that such purchases – in the long run – don’t turn out to be good investments.
This is because most timeshare owners don’t seek a positive return on their purchase – it’s considered more of a lifestyle choice rather than a sound financial investment.
How a Bankruptcy Attorney Can Help with Your Timeshare
During the bankruptcy process, your attorney will advise you on the options you have available for your timeshare. Your legal team will include the timeshare in your overall financial outlook and provide you with a plan of action that’s best suited to your situation.
At JacksonWhite, we’ll show you how to surrender your timeshare, if necessary, or plan for a budget that will allow you to keep your ownership.
Need to Discuss Your Financial Plans?
If you have questions about timeshares and bankruptcy, contact JacksonWhite Law.
Call JacksonWhite at (480) 648-8975 to schedule your free bankruptcy consultation.