What is a Timeshare?

A lot of the confusion about timeshares comes from not actually knowing what a timeshare is. A timeshare is a partial ownership right to a property. Usually, a developer will construct or buy a resort property and then after signing a contract with the developer, an owner will acquire his right to the property. There are two types of timeshares: A deeded timeshare and a non-deeded timeshare, also known as a right-to-use timeshare.

Deeded Timeshare

A deeded timeshare occurs when an individual buys an ownership right, to a resort property, for a particular time within a year. After the individual buys his ownership right, he becomes a timeshare owner. Usually, under a deeded timeshare, the timeshare owner will stay in the same place, at the same time, for the same length of time each year. This type of timeshare is much like a regular deeded property such as a home, but there are some variations.

Non-Deeded or Right-to-Use Timeshare

A non-deeded or right-to-use timeshare occurs when an individual buys a lease, license or membership to a resort property for a fixed amount of time. After the individual buys the lease, license or membership, they become a timeshare owner. Under this type of timeshare, an owner will have to contact the developer or the resort management to make reservations for the exact length of time of the owner’s stay. The exact length of time of an owner’s stay is determined by how much the owner purchased in their lease, license or membership. This type of deed is analogous to an apartment lease, but there are variations between the two.

What Happens to a Timeshare During a Bankruptcy?

During a bankruptcy, a timeshare is classified as an executory contract. Commonly, when the owner files for bankruptcy, if the timeshare owner has zero or minimal equity in the timeshare, then the owner has the option of keeping or giving up their interest in an executory contract. Usually, when an owner has zero or minimal equity in a timeshare, the timeshare is not considered an asset and therefore will not be sold to pay creditors. Under this circumstance, if the owner wants to keep the timeshare, they will continue to make payments on the timeshare or if they want to give up the timeshare, then they will let it go to bankruptcy.

If the timeshare does have a significant amount of equity, then it could be sold to pay creditors during a bankruptcy proceeding.

Chapter 7 Bankruptcy:

When a timeshare owner files for Chapter 7 bankruptcy, a trustee has 60 days to determine whether they will assume or reject an owner’s interest in a timeshare. In most cases, a trustee will reject an owner’s timeshare interest, because it is too burdensome to deal with the timeshare or because there is not enough equity in the timeshare to be of value to the bankruptcy. If a trustee rejects an owner’s timeshare interest or fails to respond with the 60 days, an owner can decide if they want to keep the timeshare or let it go to bankruptcy. However, if a timeshare does have a significant amount of equity, it can be subjected to liquidation under Chapter 7 bankruptcy.

Chapter 13 Bankruptcy:

When a timeshare owner files for Chapter 13 bankruptcy, a trustee has until the repayment plan confirmation hearing to determine whether they will assume or reject an owner’s interest in a timeshare. Much like a Chapter 7 bankruptcy, the trustee will usually reject the timeshare interest because of the burden in dealing with the timeshare or because the equity in the timeshare has little to no value to the bankruptcy.

A timeshare owner will need to make a provision within the Chapter 13 repayment plan suggesting whether the owner wants to maintain or let go of their timeshare interest. If the trustee declines any interest in the timeshare, then at the court hearing, the timeshare owner’s interest in the timeshare will be confirmed and the owner will be able to keep the timeshare. However, if the timeshare owner wants to let their interest go to bankruptcy or if the trustee wants to assume the timeshare, then the timeshare can be sold by the trustee to pay off creditors.

The Bottom line:

The bottom line is a timeshare can be subjected to liquidation without the proper means to avoid such a result. Whether you want to keep your timeshare or let it go to bankruptcy, you should seek the assistance of a qualified attorney.

Brett interns for The Cohen Firm, a bankruptcy law firm in Irvine, California. For further information regarding bankruptcy please contact Isaac Cohen, Esq. at 949-900-6700 or at icohen@thecohenfirm.com. Learn more about The Cohen Firm’s bankruptcy services by visiting their website www.thecohenfirm.com