I have an individual interested in applying for a vacant townhome I own, but is asking whether or not a bankruptcy filing will be an automatic 'no' for the application. I haven't dealt with bankruptcies and am only marginally familiar with the implications. 

This potential applicant filed for bankruptcy (I assume Chapter 13) 9 months ago, and is in the process of converting it to Chapter 7 to get rid of their house and move back to their home town (where my rental is located). It is my general understanding that to convert to Chapter 7 from 13, you have to not be able to afford the payment plan the courts originally ordered...

Anyone had a similar situation? Thoughts on whether this is an automatic deal breaker? 

Originally posted by @Michael S. :

I have an individual interested in applying for a vacant townhome I own, but is asking whether or not a bankruptcy filing will be an automatic 'no' for the application. I haven't dealt with bankruptcies and am only marginally familiar with the implications. 

This potential applicant filed for bankruptcy (I assume Chapter 13) 9 months ago, and is in the process of converting it to Chapter 7 to get rid of their house and move back to their home town (where my rental is located). It is my general understanding that to convert to Chapter 7 from 13, you have to not be able to afford the payment plan the courts originally ordered...

Anyone had a similar situation? Thoughts on whether this is an automatic deal breaker? 

 I will take people after their Chapt 13 or Chapt 7 has been discharged but not during the process. Bankruptcies can be messy actions. You don't have any control except what the court grants. In fact it would probably take a bankruptcy court order for an eviction in addition to any state and city requirements. Filing an action in bankruptcy court can cost you $1,000 of attorney fees and the motions are set to a calendar for a month or two later. Also, if they can't afford their Chapt 13 and converted to a Chapt 7 you want a good reason why. It may be legit, it may be one of them lost a job. You have to see if their current income supports the rent you charge.

@Michael S. Chapter 13 involves negotiating down debt (credit cards typically are 10 cents on the dollar) and paying it off over a 60 month payment plan. It was very popular during the foreclosure crisis for homeowners to file 13 in an attempt to save their house.  The problem is the homeowner must then start making the trustee payments and start paying their regular mortgage payment again. Suddenly going from not paying your mortgage to paying your mortgage and an additional trustee payment can be a daunting task. It's not unusual for a homeowner to try a payment plan and realize pretty quickly they will not be able to keep up. 

Chapter 7 is when you walk away from all of your debts. It's fairly straight forward and doesn't take long when compared to a 13. Once they have completed the Chapter 7, I don't see a problem renting to them. You can only file 7 every 7 years, so the worst they can do is file a 13 again. Ask if this is the only time they have filed a bankruptcy. There are a few people who are serial bk filers, but if this is their only time, it just means they got caught up in a bad situation.

If he was only 9 months into the ch 13 then he likely didn't complete the 13 plan and decided to flip to ch 7 to discharge credit card bills, medical bills, etc. 

A bankruptcy is looked at as a negative no matter what chapter they filed to lenders.

You can file multiple times but you can only get the discharge once every 7 years.