Perspective Tenant with Prior Bankruptcy, Thoughts?

Question

I have someone interested in an apartment that has low credit score (high 500s, I require 675) and verbally told me about a declared bankruptcy about 1-1.5yrs ago. She meets the income requirement and has been with the same company for several years. I inquired if she is open to 2 months rent for security deposit since her credit is so low and she is in agreement. She mentioned she had purchased a home while back and bankruptcy was related to that. What do you guys think? Should I cut her some slack or not waste any more time?

Thomas S. · Answer

Why bother having screening standards (675 credit) if all it takes for you to drop those standards is a applicant flashing cash. Reduce your screening standards to "has cash" and simplify your screening process.

What you are considering doing is what usually drives inexperienced landlords into bankruptcy. Making stupid decisions is not a solid business practice.

Ned J. · Answer

Filed bankruptcy 1-1.5 years ago....that's a big red flag to me....if it was years and years ago, lost a house in the down turn in 2008 etc..... that's one thing. But this is pretty recent evidence that she doesn't handle $$ well. She would have to blow me away on her other qualifications to even consider her..... I'm gong to pass (unless this is pretty common for my rental pool.....i.e C and D class neighborhoods etc)

Aaron K. · Answer

If she meets requirements she might be just the type of tenant you want.  Former homeowners often make great tenants, as long as you do your extra due diligence in regards to her employment and have the increased security deposit it shouldn't be a major issue.  People with bankruptcies need a place to live too.

Lauren Keen Aumond · Answer

Hi all, this thread has made me curious about something. I have always assumed that people who rent (especially an SFR for multiple years) either A) have bad credit or B) are unable to save money to buy a home. Now I'm wondering if finding someone with decent credit and enough cash to theoretically buy a home with an FHA loan (my tenants paid me $4500 for first, last and security up front) is a real possibility.

It seems you'd either get qualified tenants (who have good credit and cash) that stay for a short time or lesser qualified tenants who stay for a long time because they basically have to. What's your experience?

Steve Babiak · Answer

With a bankruptcy, you want to know if it was discharged or dismissed.

And given how recent it is, it might still be a bankruptcy in progress.

You have a pretty high credit score requirement at 675 - if you are accustomed to finding tenants who are able to meet that requirement, then you should not bother with those who fall so far short of meeting that requirement. The whole point of having requirements / criteria to qualify tenant applicants is to allow for reaching a more objective decision. This applicant doesn't qualify, so NEXT!

Jean Witty · Answer

I agree with Aaron. She might of had a bad real estate deal on a home she purchased and needed to get out, etc.. She seems to be very upfront and honest about her situation. If you want to dig a little deeper just to make you sleep better at night, I would do a full financial evaluation. You can get 12 months worth of data on her income, cash flow, and assets through Finret. I would use them and if everything checks out well then you have yourself a tenant. The extra security deposit is also a good idea.

Aaron K. · Answer

@Vishal P. I would recommend calling her employer to verify employment if you wanted to be extra cautious

Jill F. · Answer

You can't get debts discharged again for 8 years after chapter 7 discharge and 2 years for chapter 13 discharge. So if she just did a chapter 7 and she has a decent job and extra deposit (or rent), If all refs looked good, I'd rent to her. Better to rent to someone with a recent bankruptcy than someone about to file.

Vishal P. · Answer

I require 30 days pay stub to verify employment and she agrees to provide that. My only dilemma is that she wasn't good at finance and money management that led to her first bankruptcy, what's preventing her from making another money management mistake as a renter? On top of that, she will be the only income earner in that unit. You would hope people learn from their mistake.

P.S. Thanks for your feedback!

Perspective Tenant with Prior Bankruptcy, Thoughts?

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