If you want to get rid of your timeshare, filing for bankruptcy may help you discharge (eliminate) your timeshare debt. But depending on how your timeshare is structured, you may still be on the hook for postpetition maintenance fees (fees that come due after your bankruptcy filing date) until the lender forecloses on the timeshare or you transfer your interest to someone else.
How Does a Timeshare Work?
When you purchase a timeshare, you share ownership of a piece of property with several other people. In most cases, a timeshare gives you:
- a fractional deeded ownership interest in the property (where you receive a deed for your share of the property), or
- a leasehold interest that gives you the right to use the property for certain periods of time (with no deeded ownership interest in the property itself).
To buy a timeshare, you must pay its purchase price upfront. If you can’t afford to pay the purchase price in a lump sum, you can usually obtain a loan from the developer or another lender (essentially a timeshare mortgage).
In addition to your timeshare mortgage, you also have to pay monthly or annual maintenance fees to cover the costs of keeping up the property (similar to HOA dues). (Learn more about how timeshares work.)
How Are Timeshare Debts Treated in Bankruptcy?
In many cases, your timeshare is considered a real property interest (just like your home) in bankruptcy. But if you don’t own a deeded interest in the timeshare property, it may be classified as a lease or personal property interest.
If you take out a timeshare mortgage, the lender has the right to foreclose on your property interest if you default on the loan. For this reason, timeshare debts are typically treated as secured debts in bankruptcy.
Surrendering Your Timeshare in Bankruptcy
If you don’t want to pay for your timeshare anymore, you may be able to get out of your contract if you surrender (give back) the property to the lender or reject the lease in bankruptcy. (Learn about surrendering secured property in Chapter 7 bankruptcy.)
Can You Discharge Your Timeshare Debt in Bankruptcy?
If you have a timeshare mortgage or lease, you can typically discharge your personal liability for the debt by surrendering the timeshare in bankruptcy. But in some cases, you might be responsible for paying maintenance fees that accrue after filing your case (discussed below).
In general, what will happen to your timeshare debt depends on whether you file for bankruptcy:
- when you still own the timeshare, or
- after the lender forecloses on your interest.
Filing for Bankruptcy When You Still Own the Timeshare
If you still own the timeshare when you file for bankruptcy, your bankruptcy discharge will eliminate your personal liability for:
- the remaining timeshare mortgage balance, and
- any unpaid maintenance fees as of your filing date.
But keep in mind that your discharge won’t eliminate the lender’s security interest (lien) in the timeshare. This means that your lender can still foreclose on the timeshare after you receive your discharge. (Learn about timeshare foreclosures.)
You Might Be on the Hook for Postpetition Maintenance Fees
If you own a home, condominium, or a share in a housing cooperative governed by an HOA, bankruptcy law states that you can’t discharge postpetition HOA fees (those that come due after you file your bankruptcy petition) as long as you still own the property (11 U.S.C. § 523(a)(16)). This means that you remain on the hook for HOA fees that come due after filing your bankruptcy until the lender forecloses on your property or you otherwise transfer ownership to someone else. (Learn more about what happens to HOA fees in Chapter 7 bankruptcy.)
In some cases (especially if you own a deeded timeshare interest in a condominium, house, or housing cooperative), the timeshare company may argue that you are responsible for paying the yearly maintenance fees (since they are essentially HOA fees) until it forecloses on the timeshare or you transfer your interest to someone else.
Talk to a Bankruptcy Attorney
The law regarding timeshare debts in bankruptcy isn’t well settled. Whether or not you might be on the hook for postpetition maintenance fees after bankruptcy generally depends on:
- how your timeshare is structured, and
- the rules in your jurisdiction.
For this reason, talk to a knowledgeable bankruptcy attorney to learn about how your timeshare will be treated in bankruptcy before filing your case.
Filing for Bankruptcy After the Lender Forecloses on Your Timeshare
If the lender has already foreclosed on your timeshare, state law determines whether or not you are on the hook for a deficiency balance. (Learn about the consequences of a timeshare foreclosure.)
What Is a Deficiency Balance?
If the lender forecloses on your timeshare but the foreclosure proceeds are not enough to cover your loan balance, the difference is called a deficiency. Some states prohibit lenders from suing you to collect a deficiency balance after foreclosing on a timeshare. But in other states, you may be on the hook for a deficiency balance after a timeshare foreclosure.
Discharging Your Timeshare Deficiency Balance in Bankruptcy
If you are on the hook for a timeshare deficiency, it will be treated as a general unsecured debt (such as a credit card debt or medical bill) in Chapter 7 and Chapter 13 bankruptcy.
Chapter 7 bankruptcy. If you file for Chapter 7 bankruptcy, your timeshare deficiency will be eliminated along with your other general unsecured debts when you receive a discharge.
Chapter 13 bankruptcy. In Chapter 13 bankruptcy, the timeshare deficiency is lumped into the same category with your other general unsecured debts. Depending on your income, expenses, and assets, you may have to pay back a certain percentage of your debt through your repayment plan. Once you receive a discharge, any unpaid amounts will be eliminated. (Learn about how Chapter 13 repayment plans work.)