How Do You Deal with Timeshares in Bankruptcy?
What Type of Property Right is a Timeshare Exactly?
Time-sharing is an innovative form of property “ownership” borroweol from the computer industry. As the name implies, it is a method of creating multi- ple interests in a single piece of property by temporally dividing its use among as many as fifty purchasers. Each purchaser acquires the right to occupy theproperty during his “use period,” a recurring block of time lasting one to four weeks per year; title to the time-share property, usually a resort con- dominium, may either be retained by the developer or conveyed jointly to the purchasers.
Timeshares are typically structured either as shared deeded ownership or shared leased ownership:
Type 1: Shared Deeded Ownership
With shared deeded ownership, each owner is granted a percentage of the real property itself, correlating to the amount of time purchased. The owner receives a deed for his or her percentage of the unit, specifying when the owner can use the property. This means that with deeded ownership, many deeds are issued for each property. For example, a condominium unit sold in one-week timeshare increments will have 52 total deeds when fully sold, one issued to each partial owner.
Type 2: Shared Leased Ownership Interest
If the timeshare is structured as a shared leased ownership, the developer retains deeded title to the property, and each owner holds a leased interest in the property. Each lease agreement entitles the owner to use a particular property each year for a set week, or a “floating” week during a set of dates.
If you buy a leased ownership timeshare, your interest in the property typically expires after a certain term of years, or at the latest, upon your death. A leased ownership also typically restricts property transfers more than a deeded ownership interest. This means as an owner, you might be restricted from selling or otherwise transferring your timeshare to another. Due to these factors, a leased ownership interest might be purchased for a lower purchase price than a similar deeded timeshare.
How Do You Deal With Timeshares in a Bankruptcy?
In bankruptcy, at least in the Northern District of Georgia where I practice, timeshares are almost always classified as luxury items. How the timeshare is treated depends on what type of timeshare it is. For most of the people we meet with, they no longer have access to their original timeshare documents and are not 100% sure of what type of timeshare that they have. It is for this reason that we always list the timeshare interest as an executory contract and with either assume or reject it in the case.
Shared Deeded Ownership Timeshare:
Most deeded timeshare programs divide ownership of a vacation unit into weekly shares. You buy an ownership interest in the unit for a specific week. This means you have an actual ownership interest in the real estate. Bankruptcy treats fractional interest timeshares like other real estate that is not your primary residence. That is, assuming it is not exempt, the trustee can sell the timeshare and use the proceeds to repay your creditors. With that said, most timeshares are basically worthless or worth very little so most Chapter 7 trustee’s will not have an interest in your timeshare until. If you want to retain the unit you will reaffirm on the debt and if you want to surrender it then you will need to list is as executory contract on Schedule G and also deed it back to the timeshare company.
If you are in a Chapter 13 bankruptcy you need to seriously consider if retaining the timeshare is really worth it because most of our Chapter 13 trustee‘s in the Northern District of Georgia will view this as a luxury item (I mean who really NEEDS a timeshare?) and if you are in a composition plan (meaning that you are not repaying all of your unsecured creditors) you will be forced to repay either 100% of your unsecured debts or a larger percentage. I almost always advise my clients to surrender their timeshares because these are almost never a good investment and will just cause them to repay debts that they would have otherwise avoided paying.
Shared Leased Ownership Interest
In a right to use ownership arrangement, you buy only the right to use the unit during a specific week for a period of years. It is typically structured as a lease, which means you don’t have any actual ownership interest in the real estate.
Bankruptcy usually treats a right to use timeshare as a lease. A Chapter 7 trustee has the ability to assume the lease (take it over and continue it in force) or reject (terminate) the lease. As noted above in regards to a Chapter 13 case, although you can choose to retain the timeshare, you will have to repay more to your unsecured creditors (if you are not repaying 100% of your unsecured creditors back) as this will be considered a luxury item not necessary to your reorganization.
How Do You Deal with Timeshare Maintenance Fees in Bankruptcy?
Maintenance fees that come due post-bankruptcy (after your case is filed) filing will continue to accrue against a debtor and the majority of courts provide that they are non-dischargeable. This means that you will still owe these debts every after you get out of bankruptcy. Therefore, what we advise most of our clients to do is to immediately get in touch with the timeshare company and deed the property back to them to avoid accrual of non-dischargeable post bankruptcy fees on the timeshare. What you don’t want to happen is to get out of bankruptcy with your fresh financial start and then years later get a collection lawsuit on post-petition timeshare fees on a timeshare that you never legally deeded back to the company and therefore still owned it.
If you are in a Chapter 13 bankruptcy and are going to retain the timeshare then you will need to reflect these monthly fees on Schedule J as an expense. You will continue to pay these fees through the life of your case. If you are in a Chapter 13 bankruptcy and wish to surrender your timeshare you not only need to list this surrender on the plan but you also need to ensure that you deed back the timeshare. Please note that because this is a transfer of property you will need to obtain court permission before doing this. Review this with your attorney as each bankruptcy district has their own set of local rules for dealing with these matters.
If you are in a Chapter 7 bankruptcy and your are going to retain the timeshare then you will be required to reaffirm on this debt and continue to pay your fees. Keep in mind that if you were behind on your maintenance fees before filing, and you want to reaffirm on this debt, then those past due fees will still be owed and will not discharged in the bankruptcy.
If you are in a Chapter 7 bankruptcy and you do want to surrender your timeshare then immediately get in touch with the timeshare company and deed the property back to them to avoid accrual of non-dischargeable post bankruptcy fees on the timeshare.
It is always a good idea to contact an attorney who is knowledgeable about the ins and outs of Chapter 7 and Chapter 13 bankruptcy when you have a timeshare and need to know how to handle it.
If you have any questions about Chapter 7 bankruptcy or Chapter 13 bankruptcy please feel free to go to https://saedilawgroup.com or contact us at email@example.com
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