You may be someone who needs to file Chapter 7 bankruptcy, but you own a timeshare. Because you have this timeshare, you may be wondering if you can keep it or if you will lose it. If you owe timeshare debt, then you may be wondering if the bankruptcy will get rid of it. There are individuals throughout Minneapolis and St. Paul who have asked this question again and again in regards to timeshares and other properties. The answer, however, lies in the type of timeshare that you own.
Chapter 7 Basics
When you file for Chapter 7 bankruptcy, you are requesting that the court discharge some or all of your debts. If you have assets, it may be possible that you will have to give some of them up, which is overseen by a bankruptcy trustee. The proceeds from the property are used to repay the debt owed to creditors. Nonetheless, property can be exempt up to a certain dollar amount.
When those filing bankruptcy own timeshares, there are two issues that come about. The first is in regards to what happens to the interest in the timeshare. Will the trustee take it or will you get to keep it? The second issue is if you have a timeshare mortgage or owe other timeshare debts, what will happen to that debt when filing bankruptcy?
Timeshares in Bankruptcy
During bankruptcy, timeshares are seen as luxury items. This means that there are no exemptions to cover them. If you want to keep your timeshare, you will need to reaffirm the debt. How the timeshare is treated depends on the type. Those types are deeded fractional interest timeshare, right to use timeshare, and points based timeshare.
A deeded fractional interest timeshare means that ownership of the vacation home is divided into weekly shares. You buy ownership interest in the property for a specific week out of the year. This means that you do have ownership interest in this piece of real estate and bankruptcy treats it like any other real estate that is not your primary place of residence. This means the timeshare could be sold by the trustee.
A right to use timeshare means you have the right to use the timeshare during a specific week for a period of years. It is more like a lease, which means you don’t have ownership interest. The trustee does have the right to take over the lease and continue it or terminate it. However, you may get to keep it since the lease may not be transferrable, giving it no real value.
A points based timeshare is similar to right to use. You buy a certain number of points that can be traded annually so you can use a vacation unit in the timeshare. Normally, there is no ownership interest in any specific unit, nor is there ownership interest in any part of the timeshare development.
Reaffirming Timeshare Debt
If you want to keep your timeshare, you can reaffirm the debt. This means that you agree to remain liable for the debt, even after your bankruptcy is discharged. In exchange, you are able to keep the property. Keep in mind that if you default on the debt later, you could lose your timeshare.
If you have a timeshare mortgage, not paying could cause the lender to foreclose on your interest in the property. If you took out a home equity loan to pay for the timeshare, the lender has the mortgage on your home and not your timeshare. The lender can foreclose if you are in default, but whether or not they can do this depends on when you file bankruptcy. If the lender has not started the foreclosure process or is in the middle of the process, you will need to list them in your bankruptcy. If you file bankruptcy after the foreclosure, then you can wipe out the debt in the bankruptcy.