We hear from timeshare owners in our Questions & Answer section who want to stop paying their maintenance fees due to the frustration of trying to sell their timeshare.
The best advice we can give in these situations is to contact a lawyer. Every situation is different and there is rarely a one-size-fits-all answer to the question “what will happen if I stop paying my maintenance fees”. The idea of spending more money on the problem may sound depressing however only a lawyer can competently review your contract and provide solid legal advice for a course of action.
Going it alone, without legal counsel, can often result in a higher financial burden. What happens after you stop paying the fees largely depends on the type of timeshare you own, the location of your timeshare, and the location of your residence. For the sake of simplicity this article will focus on timeshares in the USA and owners residing in the USA.
Deeded timeshares will eventually result in a foreclosure, or a deed-in-lieu. A foreclosure will affect your credit, even if it was a deed-in-lieu. I am not aware of any laws or regulations that require a creditor to report a deed-in-lieu, and you may have some wiggle room to negotiate with the creditor how it is reported. Make sure you understand your tax obligations when pursuing a deed-in-lieu or a short sale. In the US a creditor will write off the debt and the IRS will treat the forgiven debt as income. The creditor will send a 1099-c to both you and the IRS when they write off a debt.
If your timeshare is not a deeded ownership then you most likely own a right-to-use and/or points based timeshare. Walking away from a right-to-use timeshare contract is similar to walking away from any other membership contract. There is no asset for the resort to recover due to unpaid fees however they can pursue the collection of unpaid fees that are defined in the terms of the contract. Your unpaid fees will most likely be sold to a collections agency. Collection agencies take pride in their ability to upset your daily life through phone calls to both you and relatives, threatening mail, and in some cases legal action.
In both instances, deeded or right-to-use, it is possible the debt will eventually show up on your credit. How it affects your credit largely depends on other factors of your credit such as Payment History, Total Debt, Total Available Credit, Length of Positive Credit, and the number of New Credit Applications you have recently completed.
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