Bankruptcy

[bluslag]

We have friends that filed bankruptcy a year ago and one of their assets was DVC. The way they understand it they have a chance to purchase it back before it goes to auction to the creditors. My questions are: Can they get it back without having to go before Disney? Can they buy it back and sell it to us? We are relatives but not immediate family. Is there any way to avoid ROFR as they are getting it back at a very low price and would like us to have it?

 

[flipflop]

We have friends that filed bankruptcy a year ago and one of their assets was DVC. The way they understand it they have a chance to purchase it back before it goes to auction to the creditors. My questions are: Can they get it back without having to go before Disney? Can they buy it back and sell it to us? We are relatives but not immediate family. Is there any way to avoid ROFR as they are getting it back at a very low price and would like us to have it?

I can't answer your bankruptcy q's as that is not the kind of law I practice. However, if your relatives are able to save this asset from auction, then yes they will be able to sell it to you. No, there is no way to avoid ROFR in a sale of DVC. ROFR is a term of the contract that they signed at purchase and that contract will still govern the sale of their DVC interest regardless of it having been involved in a bankruptcy proceeding. I'm not sure how they are getting it back at a "very low price" -- I can only speculate that (i) their attorney negotiated with disney for a lower buyout (seems unlikely but not impossible or (ii) they have paid for most of it and have a low remaining balance. Regardless, if you are purchasing their interest, you will have to pay enough per point to pass ROFR.

Hopefully a there is a bankruptcy attorney on here that can answer your questions about that process and paying assets. I do know that creditors have preferences and assets are distributed based on preference. I don't know when/how/if you are able to negotiate or pay off certain debt but not other debt.

 

[hansel1]

Is the dvc paid off? I would assume so as you said it was an asset and not a debt.

Any of the assets that the trustee believes should be sold off will be sold off to anyone. The trustee is obligated to try and get what it is worth on the resale market regardless of what it is. This is usually accomplished by publishing an auction notice of the article in the local paper. Anyone can bid on it. If the debtor wants to purchase their own assets back, they may bid on the item like anyone else. In most cases property will not be sold back to the debtor unless the debtor pays a reasonable price (and that is not usually a really good one).

It is the trustee's job to make sure that anyone who files bankruptcy protection pays their obligations to the individuals who are owed. I would think that if the debtor has cash to buy back their dvc, they would have to pay that into the trustee as an asset as well. You could give them the money to try and get the dvc back, but you would be better off just bidding on it yourself. You could get a good deal!

Having said that, disney still must be allowed ROFR on any sale.

ROFR - Disney is going to snag that baby if the price is too low. Any sale of DVC (including auctions of dvc) disney has the ROFR. Just like a resale if the debtors try to get their dvc back at a "good price" disney has a right to buy it back at that price.

 

[lisah0711]

I don't do debtors bankruptcy work but I do a lot of creditors bankruptcy work. I agree that whatever happens it will have to go through ROFR -- that can't be avoided. Depending on whether something is still owed on the contract, and the fact that it does have to go through ROFR, may make that asset less valuable to the bankrutpcy trustee. Any sale, whether it is a redemption by the debtor (your friends) or a sale to a 3rd party will have to get the approval of the court. If your friends filed a Chapter 13 reorganization then there might not even be a sale if they have a bankruptcy plan approved.

Your friends should talk to their bankruptcy attorney if they want to buy it. If you want to buy it, you would be well advised to have an attorney of your own to make sure you know what you are getting -- especially because of the bankruptcy, your friends may not have clear title.

 

[Mickmse2002]

Is it just me or does anyone else see an issue with someone filing bankruptcy turning around and buying the doggone thing again. Seems to me that money could be used to pay other creditors.

 

[hansel1]

I do have issues with things like that, but the original poster said the debtors would buy it back to sell to someone else.

I would have a much bigger issue if they had not paid off the DVC and had that debt discharged where they got it free and clear of the remaining balance.

 

[lisah0711]

If it's not paid off, DVC would be a secured creditor (and get better treatment in bankruptcy than a credit card company) and would retain that status until they are paid in full. So the debtors couldn't get a discharge and not pay the balance and keep their DVC interest.

Anyone who has dealt with the bankruptcy system knows that it is not an ideal system but it is much better now with the reforms from 2005 IMHO.

 

[hansel1]

I agree with you about the 2005 changes. I just wasn't sure that a DVC timeshare was going to be a secured debt as you don't really hold an interest in real property when you own dvc.

 

[Doctor P]

I agree with you about the 2005 changes. I just wasn't sure that a DVC timeshare was going to be a secured debt as you don't really hold an interest in real property when you own dvc.

Secured debt does not have to be real property (even though in this case it would be considered to be such I believe--there are many different forms of interest in real property and DVC does fit).

 

[lisah0711]

Secured debt does not have to be real property (even though in this case it would be considered to be such I believe--there are many different forms of interest in real property and DVC does fit).

That's right -- for example you can have a security interest in a car or boat as well as lots of other things tangible (that you can touch) and intangible (that you can't touch like i.e. accounts receivable).

Interestingly enough if you look at your DVC deed you have a fractional interest in a leasehold condominium which is a real property interest in Florida. That's why those of us who financed through DVC have a mortgage on our fractional leasehold interest.

 

[Cruelladeville]

When DD divorced several years ago, her ex filed bankrupsy, leaving DD with the bills, and forcing her into bankrupsy, as well. DVC was ordered sold, to satisfy the debt. Our attorney worked with the court and DVC to get the contract, since we had been paying the bills on it for 3 years. In this case, everyone worked together to make sure that we got the contract, including DVC, but, no, we didn't exactly get a deal, except that all the money we had paid for the 3 years was counted as payment by us for the contract.

 

[Dsnybob]

I'm an accountant who specialized in insolvency work.

Typically, in evaluating a timeshare asset in a Chapter 7 proceeding, the trustee would estimate the potential proceeds from a sale, after considering the cost of sale (broker, closing costs), taxes (if any), mortgage(s) to be paid and dues outstanding. If the asset is deemed to have value, it would be sold either via a private sale or auction. In a private sale, the purchase would be subject to higher and better offers and would require court approval. The sale would typically be subject to all contract terms, including ROFR. Hypothetically, the Debtor could purchase the asset in either scenarion, however, the source of funding would be subject to scrutiny.

If the amount projected to be realized does not exceed the costs, the trustee will abandon the asset. At that point, the asset would revert back to the Debtor subject to the outstanding liens of the mortgage and dues outstanding. To the extent the mortgage and dues remain in default, the mortgage holder / management company can foreclose on the interest as allowed under state law.

If the asset is abandoned and the Debtor is able to cure the deficiency under the existing contract terms (pay off mortgage, pay dues plus penalties and interest), they can do so as if the bankruptcy had never happened. The same scrutiny of the source of those funds would apply.

Although I'm not certain of this, it may also be possible for the Debtor to retain the asset if it is "under water" (value is less than amount owed) if the payments and dues are current, much like a home or vehicle can be retained.

Since DVC will finance as much as 90% of cost, it is very possible for an interest to worth less than its potential resale value.

An interesting sidenote is that many timeshare interests are abandoned for lack of value over mortgages and dues outstanding, however, DVC interests are less likely to be abandoned because of its high resale value.

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The above is not intended to be, or should be construed as professional advice. Anyone seeking advice in these matters is encouraged to seek individual counsel.

 

[bluslag]

I want to thank all of you for your great help. Our friends are good people that have gone through a tough time. The bankruptcy was filed over a year and half ago and just now is being processed. The DVC ownership was fully paid for and the trustee gave them the impression that they may be able to buy it back. A relative has offered to help them pay for it. Thanks to everyone for all the help.