What Happens to a Timeshare in Bankruptcy?

When one gets in over their head in debt, though overextension, loss of income, or other circumstances, it may be necessary to file for bankruptcy.

Bankruptcy is the act of requesting the federal government – acting through the U.S. Trustee – to discharge all or some of a person’s outstanding debts. As part of the bankruptcy process, the U.S. Trustee will also look at a person’s income and assets, including real estate, vehicles, or a timeshare interest.

What Happens to a Timeshare in Bankruptcy?

I’m looking to file for bankruptcy. What happens to my timeshare during the bankruptcy process?

A pivotal part of how the timeshare is treated will depend on the type of timeshare owned. There are two parts of the process – one involves the timeshare interest itself, and the other addresses any maintenance fees due.

First, who owns the Timeshare after Bankruptcy?

If one has a Deeded Timeshare, they have an actual ownership interest in real property. This interest becomes part of the Bankruptcy Estate, and the U.S. Trustee will determine what should be done with it. Unlike a house or car, a timeshare is considered a luxury item under Bankruptcy Law.

For a luxury item, there is no direct exemption that would allow an owner to hold onto their Timeshare after bankruptcy.

If an owner is looking to keep their Timeshare interest, some states (such as California) will allow a broader exemption in which an owner can hold onto several assets, up to a specified amount in value, called a “wildcard” exemption.

However, a Timeshare owner would most likely want to use the limited amount of “wildcard” exemption available to them to protect other and more valuable assets from the Bankruptcy proceeding.

The most common outcome in Bankruptcy cases involving Deeded Timeshares is that the U.S. Trustee will order the Timeshare to be sold and proceeds used to pay outstanding debts.

If an owner wishes to keep the Timeshare, then, they must reaffirm the debt and agree to keep paying any outstanding amount due on the Timeshare after the final Bankruptcy discharge.

If one has a Leasehold or Right to Use Timeshare, however, there is no property interest and little to no value in the Timeshare as an asset.

Because of this, the U.S. Trustee may opt not to take the Timeshare as part of the Bankruptcy Estate.

Second, what happens with outstanding maintenance fees?

Although any past due maintenance fees incurred prior to Bankruptcy can be discharged, any additional fees occurring after the proceeding would not be covered.

This is because the new fees are part of the ongoing Timeshare ownership for which the owner still holds an interest.

New fees assessed as part of the continued interest held is a new debt.

If an owner wishes to terminate both past and future Timeshare debts, they will have to remove their interest from the Timeshare prior to Bankruptcy.

This can involve either relinquishing the Timeshare in some manner (i.e. by selling it or gifting it to someone else) or for the Timeshare resort to foreclose on the Timeshare and take it back from the owner.