I frequently have bankruptcy clients who own timeshares with Blue Green, Marriott, Starwood, Westgate, Wyndham, Hilton, Powhatan, Playa Linda, etc. These clients often want to know: What Will Happen to My Timeshare in Bankruptcy?
Have you ever seen the movie The Queen of Versailles? If you own a timeshare, you should give it a look. The documentary is eye-opening (and sometimes eye-popping) insight into the lifestyle of timeshare giant Westgate Resorts owner David Seigel. Just listen to how his son Richard Siegel, VP at Westgate, describes how timeshare companies think of their customers:
Our Number One person in Orlando owns several weeks of timeshares.
You should own at least one week yourselves.
And if you don’t: LIE, and say you do!
100 percent of the people that we’re talking to are . . .
it’s not a nice word, but we call them “mooches.”
They’re coming in for a sales presentation
on their vacation for a free gift.
So we train our salespeople on how to take
someone greedy like that and get them to buy today.
I doubt most timeshare owners think of themselves in this way.
Deeded vs. contract timeshares
Timeshares are typically owned by multiple parties who own “shares” of time to enjoy the property. If you’ve ever tried to get out of a timeshare contract, you know how difficult it can be. Timeshare contracts are more difficult to cancel than gym contracts. There are two main types: contract timeshares (also called “right to use” or “interval”) and deeded timeshares.
If you have a deeded contract timeshare, then you have an actual interest in real property. The timeshare company records the interest as a deed in the land records of the jurisdiction where the company is based. This form of timeshare is a real property interest. Owners are liable for real estate taxes, usually paid through a monthly or quarterly “maintenance fee.”
With the contract timeshare (or “right to use” timeshare), the “owner” of the timeshare has a contract for use of the property. But the owner has no real property interest in the timeshare. Many timeshares from other countries (such as Costa Rica and Mexico) use the right-to-use contract form of timeshare. Many U.S. timeshares are deeded. Your attorney should will determine whether you have a deeded or contract timeshare.
What will happen to my timeshare in bankruptcy?
When you file bankruptcy, the trustee assigned to your case must examine and evaluate your assets, including timeshares. Timeshares are notoriously difficult to sell and market values are usually very low. Accordingly, bankruptcy trustees are usually reluctant to attempt to liquidate them.
Usually, you will have to decide: Do I want to keep this timeshare, or surrender it back to the company?
Surrendering real property or rejecting a contract sometimes gives rise to special problems in bankruptcy. In many cases, surrendering the property is sufficient, In other cases, however, a deed in lieu of foreclosure is required. Remember that title to the property will remain in your name until the bank reclaims title or accepts cancellation of the contract.
Section 523(a)(16) of the Bankruptcy Code also provides that some fees are not dischargeable in bankruptcy, including fees or assessment due to a membership or homeowners association. Whether this section applies to your timeshare again depends upon how it is structured.
In a Chapter 7 bankruptcy, you will not have to pay for the timeshare if you do not want to keep it. Conversely, in a Chapter 13 bankruptcy, even if you “surrender” your time share, you may still have to pay at least a percentage of the contract rate. Different trustees in the DC area treat timeshares differently.
Talk to an attorney about your timeshare in bankruptcy
If you are concerned what will happen to your timeshare in bankruptcy, take the time to talk with an experienced bankruptcy attorney. Lee Legal can advise you on how to keep your timeshare in bankruptcy or, conversely, how to get rid of it.