Tenant applicant - Chapter 7 discharged 6 months ago
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Member since 2016 · 13k+ posts · 12k+ votes
10yIn all honesty your other applicants are not potential tenants at all. Don't even waste your time reading their application.
You can not seriously consider the chapter 7 until you have more applicants to compare with. Put his application on hold for the time being.
An empty unit is far preferred over a bad tenant.
30 Replies
- Member since 2016 · 13k+ posts · 12k+ votes10y
It's not the worst scenario assuming your information is accurate.
I would continue to investigate including contacting his previous landlord (present landlords are not reliable) then make my decision based on reviewing all additional applicants.
- Investor · Henderson, NC · Member since 2016 · 484 posts · 208 votes10y
I would probably pass. The only way to recover monies from a tenant that doesn't want to willingly hand them over is a lawsuit. The only way for a tenant to get out of a lawsuit without paying is bankruptcy. If somebody just went bankrupt, A) They have a history of doing that, and B) Their credit already sucks so why not do it again? They probably got rewarded for doing it last time.
- 10yS HarperReal Estate Investor · Denver-metro, CO · Member since 2008 · 58 posts · 15 votesOP
Unfortunately there is only the current landlord and the credit/background check to go by, as they were previously homeowners in a different area.
My only other potential tenant from this batch just moved here from another country and neither have found jobs yet, but they are willing to pay 6 months up front.
- Member since 2016 · 13k+ posts · 12k+ votes10y
In all honesty your other applicants are not potential tenants at all. Don't even waste your time reading their application.
You can not seriously consider the chapter 7 until you have more applicants to compare with. Put his application on hold for the time being.
An empty unit is far preferred over a bad tenant.
- Investor · Henderson, NC · Member since 2016 · 484 posts · 208 votes10y
Originally posted by @S Harper:
but they are willing to pay 6 months up front.
Most people call that a down payment. If they can afford that then why in the world are they renting? This is always a huge, huge red flag.
Banks will loan money on people with some pretty bad credit as long as they put something down...
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes10y
A discharged chapter 7 can sometimes be a positive for a tenant. They just blew out a mountain of debt and will not get a bunch of credit extended to them for awhile. Just small type things with low balances.
That can be better then a model application from a tenant with perfect credit but a lot of debt. They could be on the brink of a chapter 13.
Everything is case by case.
- Investor · Henderson, NC · Member since 2016 · 484 posts · 208 votes10y
Originally posted by @Joel Owens:
They could be on the brink of a chapter 13.
Or, they might think to themselves, "hey, I'm a responsible tenant and I don't want to ruin my good credit, I need to work some overtime this month or call grandma for a loan".
Only one thing is for sure - a person with past bankruptcy has decided at some time in their life it's OK to walk away from their debts. That's generally not OK with me, no matter how long it has been. Don't reward bad behavior.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes10y
Hey Ryan,
Everyone as an investor can make choices with their money and what they want to do with it.
Sometimes things are not always black or white when it comes to making a business decision.
Some people have had medical bills or other issues that make the credit bad yet they pay on time every month for rent and keep things spotless. During the last downturn a ton of people had blips on the credit.
Acceptable level of risk and determining chances of a tenant working out is a subjective call.
- Investor · Henderson, NC · Member since 2016 · 484 posts · 208 votes10y
You missed my point. You can have a great applicant and worry they are on the brink of bankruptcy all day long. There is no proof that anything is wrong. They have proven thus far they have managed their finances responsibly.
Somebody with bankruptcy has done wrong in the past, it has been proven by a judge. I don't know what the circumstances are and I don't care, but we know 100% for sure that it really did happen. His previous creditors got screwed. Might have been a landlord or a bank or somebody else. If you want to give him another chance that's up to you, but I'm not that desperate for tenants.
If the choice is bad applicant A or bad applicant B, then you should probably wait another month. Like I said above banks will be more forgiving than I am if you have money to put down, but they aren't as careful with investments as I am. I always make better returns than banks do.
- Investor · Henderson, NC · Member since 2016 · 484 posts · 208 votes10y
Another point I'd like to make:
Banks look more at your current income than your past history. But anybody could lose their job any day.
I put more emphasis on past history. When a job loss happens, how did you handle it? Just about everybody loses a job at some time in their life, and lots of people go to the hospital or other unexpected things, but not everybody goes bankrupt because of it.
Plenty of people never go bankrupt, their whole life. Some people go through a lot of struggles and pains just to maintain their good name, instead of taking the easy way out.
- Investor · Berthoud, CO · Member since 2013 · 42 posts · 19 votes10y
@S Harper
Look for additional information beyond credit reports. Request a copy of last 2 months' of checking account. This will give an indication of how this person is handling their money. Copy of W-2 for 2015 & last 2 pay stubs will confirm the employment income. Current landlord is not renewing lease is a 'red flag' for me. Why? What is tenant applicant explanation? In the current Denver market you should have a lot of interest & options for almost any rental property. You could also ask for 2x security deposit or collect 1st & last mo. + security deposit due to the Chapt. 7
- Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes10y
Impossible to answer this without knowing what kind of area the rental is in and how much interest you've had on the rental thus far. Is he at the upper end tenant quality wise as far as what can be expected for the area? If so, take a bigger deposit. If the 600 credit and income is on the low end for what you should expect for the area than I would pass.
Also, I wouldn't put much stock in what the current landlord has to say. If he is looking for that unit to be vacant (which could be for a lot of reasons) he will give a glowing recommendation.
- Investor · The Colony, TX · Member since 2014 · 192 posts · 66 votes10y
In reference to several points above:
You cannot buy a house in your name for two years after a bankruptcy - not even with a cosigner. No matter how much money you can afford to put down.
You can't go through a bankruptcy everytime you owe someone a little bit of money, nor would you want to. The threshold to file a chapter 7 is pretty high - not just a few months of unpaid rent.
Someone that files for bankruptcy due to a business failure is very different than someone that just doesn't pay their bills and can't even be troubled to straighten out their finances, be it through bankruptcy or other means.
Ask me how I know...
- Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes10y
@S Harper so this is what you need to do. Write down your rental criteria when you don't have a vacancy and then this question would be answered for you. My guess is that if you had written down your criteria it would have had no Bankruptcies in the past 10 years or something like that. You would have your answer and we wouldn't be talking about this now.
Now to your question. I think they would make a good tenant from a credit standpoint if you can verify that they did have a business that went down. I consider that landlord kicking them out a red flag. If you can't get a hold of the landlord and can't get an answer that makes you 100% comfortable make an in-home visit. Make an excuse to drop buy unannounced and see how they live. If the LL is kicking them out because he's a slob you will know that right away.
Now a vacancy is a blessing compared to a bad tenant. It's time to look at other options.
- Memphis, TN · Member since 2015 · 43 posts · 27 votes10y
I say no to bankruptcies within the last 10 years. I have seen quite a few applications where people have filed more than once and sometimes that included past due rent. I say pass on this one.
- Professional · Loudonville, OH · Member since 2015 · 125 posts · 37 votes10yThis is an interesting thread to me. I am a property manager as well as a bankruptcy attorney (it's one of several practice areas for me) and I will sometimes give *preference* to someone just out of bankruptcy. They've just wiped the slate clean so their income is available to pay rent - no credit card bills or $1k+ utility bills out there competing for their money so they can pay rent! Additionally, someone just out of bankruptcy can't file another Chapter 7 for 8 years. So they are, in some ways, a much better risk than someone who has NOT filed but has other debt out there but could file BK any day. So anyway, you guys keep avoiding them as tenants and it keeps my pool of potential tenants bigger. LOL
- Attorney · Shawnee, OK · Member since 2013 · 350 posts · 230 votes10y
I agree with @Erin K. I will take them as well.
I am also a bankruptcy attorney by trade. Here is an individual's situation after filing bankruptcy:
1. Can't file chapter 7 again for 8 years.
2. Same income.
3. Generally, same assets.
4. Some landlords won't rent to them.
Looks like a good long term tenant to me if they meet all of the other requirements.
I don't understand the mentality of requiring 10 years post filing to rent. That is when they can file again. I am not sure what it proves.
As for the all bankruptcy filers are bad people mentality expressed earlier, welcome to the real world. I hope your bubble has been nice to live in.
Bankruptcy is not fun or the easy way out. It is a serious choice involving complicated federal and state laws that has a lasting effect on the filer for the rest of their life. For some individuals it is the best choice. Some individuals misuse the system. There is black, white and grey in every situation.
Someone who blames the debtor does not know what hardship is. I don't care if you have had to work two or three jobs to make it. By definition, you could make it- because you did. There is a point where no matter how much you fight, you can't make up the difference. That is called math. Its kind of unforgiving. Bankruptcy allows honest debtors to get a fresh start when they can not pay off their debts.
The attitude blaming all debtors is dangerous. This attitude causes depression, conflict, marriage failure and even death. I have seen individuals so prideful they would rather destroy their marriage or themselves then admit they can't do it on their own and seek help. Good luck with that. If you feel Chase, Bank of America and Discover Card's balance sheets are more important to you than the health and well being of your children- more power to you. Don't blame others for having more humility and mathematical intelligence. I promise you the system is working out very well for the above mentioned creditors.
Back to the point of no return I spoke about earlier. In some situations there is no choice. Some people fight it more than others. There is no single answer that works for everyone. Run as fast as you can little gazelles. The problem is the cheetahs are making the rules. Creditors have hundreds of years of institutional memory. They have the smartest and most talented minds produced by the best schools the world has ever seen. They create the laws through lobbyists and campaign contributions. Against that is you, your aunt, cousin, son, mother etc. Take a wild guess as to who wins the majority of the time.
- Investor · CO · Member since 2011 · 107 posts · 28 votes10y
I will add in my agreement with @Erin K. and @Paul Choate. One of my best tenants ever had just gotten out of bankruptcy. This was in the last downturn, and he had a small home repair business. As I said, one of my best tenants ever. And I've maintained a business relationship with him even after he moved out to move closer to his extended family up in northern Colorado. He's a wonderful handyman - very honest and conscientious. So I gained a valuable addition to my network by renting to him.
So I guess it all might be situation dependent, but I wouldn't discount him just because of the bankruptcy.
- Investor · Henderson, NC · Member since 2016 · 484 posts · 208 votes10y
Bankruptcy is almost always their own damn fault! I don't live in a bubble, I'm just financially responsible. I've never gone bankrupt, nor will I ever. Yes, I've gone through plenty of hardships. And I've never gotten any help from anybody. In fact, I'm a high school dropout, and I have such a serious disability that I can hardly walk. Never been able to hold a normal job in my life. I always pay my bills. I enjoy better credit and better treatment based on my credit because I have earned it. I can rent anything I want because I have a spotless record. (Not that I would rent anything)
If you "can't make it" because the math doesn't work then you screwed up somewhere along the line. That is not a normal thing that just happens to everybody. You make it sound like it was somebody else's fault. It was not! Bankrupt people have proven personal financial failures. I don't want them in my unit. Simple as that. Maybe they will be a great tenant, but maybe they won't. I don't like maybes. I guess some people are desperate for tenants, but I get to take my pick. Do you really have that few of applicants to choose from?
Just for reference, I wouldn't accept Donald Trump as a tenant, either. (nothing to do with politics)
- Attorney · Shawnee, OK · Member since 2013 · 350 posts · 230 votes10y
@Account Closed
You prove everything I have said. Yeah! For you! The vast majority of people work hard, face problems and make it. No one is handing out cookies. I specifically excluded you from my discussion. Once again, if you can work- you are not disabled. Your personal anecdote is just that. Your experience.
It would be great if you could provide your data set from which you base your opinion. I speak to 4-5 individuals every day who are facing financial hardship. I can give dozens of examples where the debtor was not at fault and tried to play by the rules. Most involve health, divorce, death, job loss, fraud etc.
The op has stated he has limited applicants and his question was whether a bankruptcy should be an automatic disqualifyer. So, yes there are few applicants. It would be nice to know how many units you are managing on a regular basis. I am always happy to learn from others. It is my experience when someone's experience so directly conflicts with what I know to be true they generally don't have the bonafides to back it up. Such is the Internet. I am eager to be proven otherwise.
- Investor · Henderson, NC · Member since 2016 · 484 posts · 208 votes10y
It would be great if you could provide your data set from which you base your opinion.
It would be nice to know how many units you are managing on a regular basis. I am always happy to learn from others. It is my experience when someone's experience so directly conflicts with what I know to be true they generally don't have the bonafides to back it up. Such is the Internet. I am eager to be proven otherwise.
It's quite simple. I know the definition of bankruptcy. There are enough good applicants with clean records in my area that I don't even need to consider for one second somebody who has that on their record. There is a better choice already in line. If you want to take them that's fine, but your opinion is neither more important or more correct than mine is.
I manage more than 22,000 square feet of mixed industrial, commercial, and residential. I have people begging me for space even when I have none to lease.
- Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes10y
Originally posted by @Account Closed:
Originally posted by @S Harper:
My only other potential tenant from this batch just moved here from another country and neither have found jobs yet, but they are willing to pay 6 months up front.
Most people call that a down payment. If they can afford that then why in the world are they renting? This is always a huge, huge red flag.
Banks will loan money on people with some pretty bad credit as long as they put something down...
This assumption isn't quite right.
Unemployed illegal immigrants cannot get a mortgage.
Gainfully employed very recent lawful immigrants often have a very hard time getting a mortgage. 80% of loan originators wouldn't even know where to start, so if they just walked into BofA and were told "no" by whoever wasn't busy (IE, the crappiest guy in the branch... there's a reason he wasn't busy), they might have given up on ownership.
Unemployed recent lawful immigrants cannot get a mortgage.
I wouldn't assume that the recent immigrant was a dead-beat. Buuuut I might want them to get a job and show me a paystub.
- Investor · Henderson, NC · Member since 2016 · 484 posts · 208 votes10y
I would not take a recent immigrant or an illegal immigrant for the exact same reasons. No guarantee they aren't going to run back to their home country and leave their debts.
- Attorney · Shawnee, OK · Member since 2013 · 350 posts · 230 votes10y
@Account Closed
Your opinion is based on knowing the definition of bankruptcy and owning or managing a smallish mixed use property in a high demand area. Got it. Everyone is entitled to their own opinion. I only care that people understand what it's worth.
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