Owning a cabin “Up North” is a Wisconsin tradition going back generations. Whether it is a two-room shack with no running water or a newly built mansion with its own boathouse, Wisconsinites love their weekend get-aways. When we talk to a client that is considering filing for bankruptcy, we often get questions about what will happen to the family’s vacation home.
The answer is every lawyer’s favorite answer — it depends. It depends on who actually owns the property, whether the property is owned outright or has a mortgage or liens attached to it, and what chapter of the bankruptcy code the debtor is filing under.
Who owns the property?
Many Wisconsin vacation homes are owned by more than one person. Sometimes brothers and sisters share ownership of a home that was purchased by mom and dad years ago. Sometimes the home is owned by a trust but primarily used by the person filing for bankruptcy. This complicated things, but it is so common there is a lot of case law we can rely on when we argue that a particular property should be saved.
In general, it is easier for a debtor to hold on to a cabin that is owned by several family members or a trust than one that is owned by the debtor alone.
How much equity is there in the cabin?
This may seem counterintuitive, but if a vacation home is debt-free it may be more difficult to keep out of the bankruptcy estate. If the debtor has a lot of equity in his or her vacation home, and selling it would help pay off the creditors, the bankruptcy trustee may decide it would be best to sell it.
If there is not going to be a lot of meat on the bone after the sale is made, commissions are paid, and liens are paid off, the trustee may decide it is not worth the effort to sell the property.
What chapter of the code is the filing under?
People who file for bankruptcy under Chapter 7 of the bankruptcy code should be prepared to see their second home sold off. Chapter 7 is a liquidation bankruptcy, and the property is just another asset, no matter how much sentimental value it holds.
Filing under Chapter 13 of the bankruptcy code may allow a debtor to hold on to a second home if the debtor will be able to pay off their creditors through the Chapter 13 repayment plan process.
You Are Not Alone
Keep in mind that all this is just general information, if you want advice about what to do in your specific situation, you need to contact our office in Milwaukee to make an appointment. There are around 188,000 seasonal or recreational homes in Wisconsin, and you will not be the first owner our office has advised who would do anything to hold on to their little slice of heaven Up North.