Timeshares and Chapter 7 Bankruptcy

A Timeshare is a property with a divided form of ownership or use rights. It is a form of fractional ownership. In Chapter 7 bankruptcy case a timeshare is treated the same as a home. If a debtor has ownership rights in a timeshare (known as a “fractional interest” timeshare) those assets will have to be listed as an asset in schedules A and B. Also, because the lender has a secured interest in the timeshare the debt will be listed in schedule D of the bankruptcy petition. More troubling is a timeshare is a luxury item, so they are not exempt.

If the debtor still has an ownership interest, then we must determine the value of the timeshare. If the value of the timeshare is more than what is owed (meaning it has equity) then the bankruptcy Trustee may take it and liquidate it to disperse funds to creditors. Of course, a debtor can always borrow money and purchase the equity from the Trustee.

So, what happens if your timeshare was foreclosed prior to filing for bankruptcy? Well, just like any other secured debt, if that happens you can get the deficiency discharged.

If the timeshare is a “right to use” timeshare the debtor is only buying the right to use the property. These are treated like a lease. The Trustee can assume the lease (that means to take it and continue it) or reject it.

A points-based timeshare is like a right to use timeshare. With this type of timeshare, the debtors can buy several points that can be traded each year to use a vacation unit in the development. Normally there is no ownership interest in the property and they, like a right to use timeshare, are often treated like a lease. There are occasions where they are treated as personal property and if not exempted get taken and liquidated.

Ultimately though, like anything else, if the timeshare has value and/or there is equity a debtor is at risk of losing that asset in Chapter 7 bankruptcy.