Behind on Your Timeshare? How This Plays Out in Bankruptcy

Timeshares can be costly and add to financial problems

Image source: Flickr user Grace Garcia

Investing in a timeshare can be one of the costliest and poorest uses of your hard-earned money. No matter the spiel the salespeople offer, timeshares are often much costlier than simply paying for your vacations as you go. These are major expenses and, if you begin having money troubles, can quickly become problematic. Timeshares also often have aggressive collections agents that don't take lightly to you not paying your installments on time. And missing payments can ruin your credit. If you do decide to file bankruptcy, you may wonder how your timeshare will be handled.

There are all different types of debts. Credit cards and medical bills are unsecured debts and can be wiped out in Chapter 7 and greatly relieved in Chapter 13. Mortgages and car loans are secured debts. These can be wiped out in Chapter 7 if the asset is surrendered or, using Chapter 13, you can get more time to catch up on payments. Other debts like leases are handled differently and timeshares fall under this category.

What's a lease?

A lease is a contractual agreement to use real or personal property for a specific length of time and for a certain cost. Cars can be leased, homes or apartments can be leased and certain equipment like laptops, cell phones or furniture can be leased. And because a timeshare doesn't give you a piece to a tangible piece of real estate like a specific house or plot of land, it's essentially a lease. It entitles you to usage of a piece of property for a certain amount of time each year for a certain price, but it's not a mortgage because the property isn't tangible.

Do leases have to be listed in your bankruptcy?

All debts you owe must be listed on your bankruptcy petition this includes leases for real property, personal property, a house, car, laptop or a timeshare. Even if you want to try and keep the leased property and are current on your payments, you still must tell your attorney about it and list it in your petition. And if you're behind on your payments and can't afford to finish out the lease, it's doubly important that you list it so it can be eradicated.

Do you get to decide what happens to your lease in the bankruptcy?

Once you file bankruptcy, either Chapter 7 or 13, the Trustee assigned to your case will evaluate your debts and liabilities and make decisions about how to proceed. One of the things the Trustee can do is to decide whether your leases should be paid or rejected and this includes timeshares. With a timeshare, Trustees will usually opt to try and sell it if it's paid off.

If they can't sell it, they may engage an agent to rent it to generate revenue if it's unsellable. If you still owe money on the timeshare, the Trustee can exercise either of these options or can simply discharge the obligation with no further action taken. Another option is for the Trustee to offer it back to you for an affordable down payment and installments. They may also offer it to another buyer at a bargain.

The bottom line is that it may, in fact, not be up to you what happens to the timeshare obligation once you file bankruptcy. The Trustee is the ultimate voice on how your debts are handled no matter which chapter of bankruptcy you choose to file. So long as they operate within the confines of the law, the Trustee has great latitude to make these important decisions.

To find out more about your options when it comes to leases such as a timeshare, contact the law offices of John T Orcutt for a consultation with one of our North Carolina bankruptcy experts.