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What happens to my timeshare if I file for bankruptcy?

Timeshares are big business. Not only have they been around since 1969, but they generate an estimated $7.9 billion a year in annual sales. While some people love their timeshares and enjoy the accommodations, in-room amenities, and the ability to “exchange” their shares for accommodations at other resorts around the world, other buyers have difficulty using their vacation weeks and paying high payments for annual fees.

Recently on our legal forum a user asked, “I bought a timeshare on an impulse a few years ago. I lost my job, and now I cannot afford to make payments for the purchase. I have decided to file for bankruptcy protection. What will happen to my timeshare? What will happen to the fees I owe?”

Chapter 7 and your timeshare

Debtors who decide to file Chapter 7 bankruptcy may be able to have some of their unsecured debts discharged. After the bankruptcy petition is filed, the bankruptcy trustee assigned to the case will gather the nonexempt assets and liquidate them, using the proceeds from the sale to repay the creditors. How your timeshare is treated during the bankruptcy will depend on the type of timeshare you have purchased.

What type of timeshare do you own?

Deeded fractional interest timeshare

If your timeshare is considered a deeded timeshare program, which means you have a deeded interest in the vacation unit, this type of ownership is similar to owning other types of property or real estate. The deeded fractional interest is not exempt from liquidation so it can be sold by the trustee and the monies can be used to repay your creditors.

Right to use ownership

Now, if you do not have a deeded fractional interest you may have what is termed a right to use ownership agreement. This agreement is treated like a lease. The trustee has several options with regards to the lease, such as terminating it or taking it over and continuing it in force. Talk to the trustee and your bankruptcy lawyer if you have more questions about what will happen to your lease.

Points based timeshare

If you have a points based timeshare this allows you to buy points that can be traded for vacations. Filing Chapter 7 bankruptcy may treat the points based timeshare as a lease or as personal property. Talk to your bankruptcy trustee for more information about what option will be used.

Can the timeshare maintenance fees be discharged?

Another common question debtors ask is whether or not the accrued maintenance fees can be discharged in bankruptcy. Whether or not you will have to pay the fees after you file for bankruptcy will depend on when the fees were accrued.

If the fees were incurred prior to the bankruptcy filing, they will be discharged. If they were incurred after the Chapter 7 bankruptcy filing, however, they may be treated as post petition fees and not discharged, although this may not be true for all jurisdictions.

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