In this week’s consumer bankruptcy blog we will discuss timeshares. It has been said that real estate is the ultimate investment. Unfortunately that adage does not apply to timeshares. The only one that makes money in timeshares is the company that sells them and charges the upkeep plus other accessory fees. The majority of people that buy them do it during a high pressure sales pitch during a free dinner or promoting free tickets to Disney or another attraction, only to realize after the initial euphoria that a timeshare really just is not worth it. Not only will the fees be sky high and generally increase annually, trying to sell them is nearly impossible without losing money.
How do you get rid of a timeshare?
Getting out of a timeshare is very difficult. It is made that way deliberately by the sellers. A few states have tried to help by adding rescission periods but they usually last only a few days. And while a few timeshares have resell options on the contract, they depend on the resort being willing to take them back. Some companies which claim to get owners out of timeshares tell people to stop making payments. Their strategy is to have the client go into default leaving the timeshare owner with a credit hit and possible foreclosure of the timeshare.
How does a timeshare work in a bankruptcy?
Those of you who follow my blog know that equity is important in a bankruptcy filing since equity often makes the difference between filing for Chapters 7 or 13. The value of the timeshare is generally either $0 if paid off or underwater as a timeshare is generally a liability not an asset. Even if a trustee were to believe there is equity few timeshare holders would want to prevent the sale. Generally if the timeshare has not been foreclosed, the statement of intention on the bankruptcy forms will be listed as surrendered. If the client is behind on payments all attempts to collect must cease and the property will return to the holder of the timeshare mortgage note. Sometimes, a quitclaim deed can be sent by the bankruptcy attorney to the time share company to speed up the transaction.
One thing to be cautious about when dealing with a timeshare in a bankruptcy is maintenance fees. Some states will require maintenance fees to be paid by the debtor until the property changes hands. However, a client may be faced with the tax liability of a 1099-C form if they wait until after the foreclosure. For more about this see our article Should You Pursue a Debt Settlement Option?.
Retaining a timeshare in bankruptcy
If for some reason you want to maintain your timeshare during a bankruptcy, can you do that? Yes, (usually) you can. As mentioned above, timeshares generally have no equity so they will not generally be sold by the trustee in a chapter 7. However in a chapter 13, a person must show they have enough income to maintain the monthly payments.
If you’d like more information about timeshares and bankruptcy please contact us.
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