Filing bankruptcy to wipe out debt owed on timeshares can be tricky. Eliminating the mortgage owed on a timeshare in bankruptcy is not a problem. The problem is the maintenance fees which can be extremely high in some cases.
I meet with clients all the time from Rome, Dalton, Calhoun, Dallas, Douglasville, Hiram and Cartersville Georgia who got suckered into some timeshare deal. The scam usually starts with a “free” vacation. You go stay for a week free in paradise in exchange for listening to a high powered sales pitch from professional sharks. Many people yield to the pressure. Some people love their timeshares while other painfully regret the decision to buy.
Here is a example of a nightmare situation that could play out. Lets say a Georgia married couple owns a timeshare free clear but wants to get away from the future maintenance costs. As a result, they file a Chapter 7 bankruptcy and attempt to surrender the timeshare to the association that is in charge of collecting the maintenance fees. A few years years later, the timeshare association files a lawsuit against this Georgia couple to collect post-petition maintenance costs. In this scenario, I think that the Georgia couple will be stuck owing all of the post-petition maintenance costs. The title to the timeshare did not transfer just because they listed it as surrender in their bankruptcy petition. In this particular case, the Georgia couple will be on the hook for timeshare maintenance fees until they can either sell it or talk someone into taking it off their hands in exchange for paying all future timeshare maintenance fees. Hopefully, their bankruptcy attorney explained this possibility to them before they filed their case.
Lets change the scenario by saying that the Georgia couple owes some finance company for the timeshare. Again, the Georgia couple surrenders it in the Chapter 7 bankruptcy petition. Another possible nightmare scenario is that the finance company never forecloses on the timeshare or does anything with respect to the deed. Again, the Georgia couple could be held liable for all future maintenance fees.
I bases my conclusions on section 523(a)16 of the Bankruptcy Code. Some bankruptcy attorneys will argue that this section of the Code does not cover timeshares but does cover condominiums. In my opinion, most timeshares are structured as fractional ownership of condominiums. It will be interesting to see how these timeshare situations work their way through the courts. Perhaps we may get clear direction from future court rulings. In the meantime, I am going to advise my Georgia bankruptcy clients that they should not expect to wipe out future maintenance costs from timeshare interests.
3. How much does it cost to file?