What to do with Timeshares! Is the Debt Discharged? Yes! But What About Postpetition or Post Discharge Use of the Property?

Below is from the California Bankruptcy Specialists List serve.  Debtor’s obligations under a timeshare agreement are discharged.  But what about postpetition and/or post discharge obligations?  If the obligation arises under the contract, I say it’s gone.  But what about when the debtor uses the timeshare postpetition?  He or she certainly cannot use it for free?  The value of the postpetition use would be, I assume, presumed to be the contract price, and that would be a postpetition debt.  But what does it mean that the debtor “used” the timeshare – postpetition?

From the listserve:

Renay Rodriguez posted:

During recent research I found:

“In 1997, a bankruptcy court considered whether postpetition time-share assessments relating to a surrendered time-share interest were discharged in [*16]  a debtor’s chapter 13 bankruptcy. In re Mattera, 203 B.R. 565 (Bankr. D.N.J. 1997). Following the language of § 1328(a), the court in Mattera framed the issue as two-fold: “[W]hether the association’s [postpetition] assessments constitute a ‘debt’ under [] § 1328(a), and, if so, whether that debt has been ‘provided for’ by debtor’s Chapter 13 plan.” Id. at 570. The court, believing “that the Rosteck opinion best reflect[ed] a plain reading of the statutory definition of ‘claim’” and interpreting the terms “debt” and “claim” broadly, concluded:

[A]t the time of the filing of debtor’s Chapter 13 petition, the obligation of the debtor to Ocean High for [postpetition] assessments was a contingent, unmatured, unliquidated, unfixed right to payment which constituted a “claim” and a “debt” for § 1328(a)discharge purposes. The claim was contingent upon the retention of ownership by the debtor, and the regular assessment of fees by the association. The claim was not fixed in terms of a certain and definite amount due at the time of the filing of the petition. The debt would mature each month as assessments were made by the association.

Id. at 571. The Mattera court went on to explain:

Our conclusion that [postpetition] assessments constitute claims within the definition of [] § 101(5) and may, therefore, be discharged as [*17]  an in personam obligation of the debtor does not mean that if the debtor continues to use the unit and/or receives benefit from it, that she may do so without compensating the association. While this factual scenario is not directly implicated here because debtor has certified that she did not use or benefit from the time-share following the filing of the petition, liability for [postpetition] use and occupancy, on theories of unjust enrichment and/or quantum meruit, might be available. See, e.g., In re Lamb, 171 B.R. 52, 55 (Bankr. N.D. Ohio 1994).

Id. at 572. As to the second prong of the issue, the court in Mattera concluded that the debtor’s postpetition assessments were provided for in the plan because debtor’s plan provided for the surrender of the time-share and specifically listed the time-share association as a secured creditor. Id. ”

Have any of you had luck with getting the Association to stop billing the client and damaging their credit?  They have had no use of the timeshare, they are barred because of the bankruptcy, and now they are sending them post petition claims. . . . .

R. Grace Rodriguez, Esq.

 

Dave Tilem responded:

Grace:

This is a very important post as I believe a million or more Americans are burdened by timeshares which they no longer care to use.  Further, the new wave of timeshare release or relief companies want thousands of dollars (typically $3-5,000) for the “privilege” of relieving time-share owners of their burdens going forward.

Some may recall that a few years ago I helped someone start a company called Dead End Properties, Inc.  It was designed to relieve debtors of the ongoing burden of HOA assessments even though they had abandoned their properties and had their personal liability discharged in bankruptcy.  The effort was not successful for two reasons.  First, I was never able to figure out how my friend could monetize the properties acquired by the company – yes, make money for helping debtors.  It is true that Dead End Properties charged a few hundred dollars for accepting a property, but that’s wasn’t really “money”.   That did not even cover all of the costs and legal fees involved.   Second, not enough people took advantage of this opportunity.  Had more done so, my friend could, perhaps, have done something with a large number of properties.  Dead End Properties has gone by the wayside.

My point in recalling Dead End Properties, however, is that I have been considering something similar for timeshare holders.  The problem with timeshares is that they appear to be a combination of an interest in property (which can be sold without problem under Title 11) coupled with an executory contract (which needs to be assumed by someone able and willing to provide adequate assurance of future performance) – perhaps something like an easement which runs with the land.    Debtors in Chapter 13 and 11 cases can sell the property, but how do they assign the executory contracts unless the buyer has financial capacity to pay the ongoing maintenance costs?  It would be of great benefit to many if we could figure out a place where these timeshares can quietly go away and die, ala Dead End Properties……

I am hopeful that, when I get a chance to read the 9th Circuit case you cite below, it will advance my thinking.  But I also want to invite the collective to consider how best to help our clients (and friends and even family members) who have fallen into what I consider to be the “timeshare trap”.  For those who want to keep their timeshares and who use them as they were intended, great!  For those who succumbed to the hard sell and are now burdened with an annual maintenance fee, we are experts in debt relief and we should be able to come up with something.

I welcome any and all suggestions, ideas, thoughts or stories about things which people have tried to accomplish this goal

Thanks again for your post.

David A. Tilem

 

 

 

Leave a Reply


five + = 12