Investing in real estate often comes with the opportunity to rent out the property for income, potentially sell it and enjoy special tax breaks. But purchasing a timeshare, which isn’t considered a true piece of real estate but rather a right to use vacation interval options, doesn’t carry the same benefits for owners. And it also can come with some hefty debt.
The timeshare industry tries to make this clear in marketing materials, but it can be difficult for consumers to understand. While buyers can opt for deeded property that they own outright, many people purchase non-deeded timeshares where they simply lease the right to a specific resort and vacation options over the course of decades. In either case, a timeshare is a form of consumer debt that can be discharged through bankruptcy.
However, some people who have timeshare debt find themselves in an inconvenient position when they decide to walk away from their timeshares and are unable to resell them on the resale market, according to an article from NerdWallet. When this happens, they may still have to pay a substantial sum of money for annual fees and maintenance charges.
If they don’t keep up with these payments, they could be forced to sell assets like their homes, according to the NerdWallet article. And if they continue to miss payments, their credit scores could drop considerably, and the company will likely send the debt to a collection agency that will hound the borrower with telephone calls, voicemails, letters and text messages.
Some timeshare owners discover they can rent out their units for enough to cover or at least offset the annual fees and maintenance costs, Gamel says. Others may be able to get out of their contracts by finding a buyer through the developer’s program or homeowners association, depending on the terms of the contract.
Those who can’t afford to continue making their payments may be better off trying to refinance the loan or, in extreme cases, filing for bankruptcy. A Chapter 7 bankruptcy can suspend collection activity and wipe out timeshare debt, but it may take some time to process. And a Chapter 13 bankruptcy may damage a person’s credit score and profile for up to 10 years.
Before you consider filing for bankruptcy to eliminate timeshare debt, you should speak with a local bankruptcy attorney. The National Association of Consumer Bankruptcy Attorneys offers referrals. You should also try to negotiate with your creditors to settle the debt or restructure the payments if you’re not successful. Otherwise, you’ll be stuck paying those unmanageable debts for the rest of your life. And that’s not really the best way to spend your vacations. NerdWallet is a personal finance website that helps consumers make smart financial decisions.