Layton, UT · Member since 2013 · 26 posts · 2 votes
Assuming a prospective tenant has shining references from previous landlord, over sufficient income for rent, but bad credit (following divorce, etc.) and possibly considering bankruptcy to begin rebuilding credit, what effect might this have on their ability to continue paying rent.
I don't know what I don't know about bankruptcy. She said she doesn't have any monthly debt payments.
Assuming a prospective tenant has shining references from previous landlord, ...
The landlord might be trying to get rid of a problem and be very motivated to LIE to solve his problem. You need to see the track record with landlords before the one where they currently live.
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
11y
She must have debts otherwise there would be no point in considering bankruptcy. The purpose of bankruptcy isn't to "rebuild credit". The purpose is to help someone repay or eliminate their debts. I wouldn't have an issue renting to someone who has previously filed bankruptcy and already had it discharged, but I wouldn't even consider renting to someone who is contemplating the initial filing of it.
Flipper/Rehabber · Greensboro, NC · Member since 2010 · 623 posts · 615 votes
11y
Never guess. Run a credit report and criminal background check on all potential tenants. Make it part of your standard application process. Not doing it is how investors with only a few properties end up with the bad tenants - they know you don't check. As @Kyle J. said, you already know there's more than you've been told or bankruptcy wouldn't be on the table.
Assuming a prospective tenant has shining references from previous landlord, ...
The landlord might be trying to get rid of a problem and be very motivated to LIE to solve his problem. You need to see the track record with landlords before the one where they currently live.
Investor · Vancouver, WA · Member since 2013 · 3k+ posts · 4k+ votes
11y
Of course check the big four: income, rental history, credit history, and legal history. Are they rule breakers or just had a hard break? If you accept a tenant who comes with higher risk, then charge higher rent or a higher security deposit.
Two questions we ask during tenant screening are:
"We run a credit check on every applicant. Is your credit history good? If not, please explain your situation and what steps you have taken to improve your record."
"Do you currently owe any money to any person or business?" If yes, then... how much and to whom?" We might also ask them to explain what they are doing to remedy situation. Are they on a payment plan and staying current with that?
If they are considering filing bankruptcy, they may be just talking, know nothing about it, and realize later it is not the right path for them to take. However, if they become your tenant and later file bankruptcy, you may be caught up as one of the creditors. Don't let them rack up any debt with you and beware of the worse case scenario.
Here is an opinion from a law firm in PA, but not specific to PA, that may shed some light for you. It is about residential tenant bankruptcy and how it can impact a landlord.
Of greater risk is the prospective tenant who is considering filing bankruptcy but has not been up front about it. The fact that your prospective tenant is being open and honest with you about her situation is good thing. Verify everything she tells you and let her know your concerns as well. Then work out a plan to protect your interests if you decide to rent to her. A MTM rental agreement, as opposed to a longer term lease, may give you more flexibility if things start going downhill. Good luck!