Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes
I had a call today from someone who filed bankruptcy and is making payments on it. It won't be discharged until later this year. Based on our phone conversation, they had a bunch of past financial problems and their current rent is higher than mine.
After asking about the financials (haven't shown the house yet or verified anything) they take home 4.35 times the rent after taxes and payments on the bankruptcy. The income is very good and they allegedly have a great rental history.
If the income and rental history check out, could this bankruptcy affect me in a negative way?
After a BK has been filed, new contracts or financial obligations should not be entered into without them running it by thier attorney. Thier attorney should of and probably did give them that instruction as it can mess things up for them. Contracts made in contemplation of bankruptcy or made after filing may not be included and you should have a letter reaffirming the debt or obligation from the BK attorney. Credit wise, they are a better risk after BK than anyone else with financial issues as over the term of your lease they will be barred from filing that type of BK.
They may have a payment requirement in paying certain debts that could change thier disposable income, but the court will take into consideration thier living expenses including your lease amount, if that is done.
Get a letter from the BK attorney, the phone call is notice but go for notice and the reaffirmation in writing. :)
After a BK has been filed, new contracts or financial obligations should not be entered into without them running it by thier attorney. Thier attorney should of and probably did give them that instruction as it can mess things up for them. Contracts made in contemplation of bankruptcy or made after filing may not be included and you should have a letter reaffirming the debt or obligation from the BK attorney. Credit wise, they are a better risk after BK than anyone else with financial issues as over the term of your lease they will be barred from filing that type of BK.
They may have a payment requirement in paying certain debts that could change thier disposable income, but the court will take into consideration thier living expenses including your lease amount, if that is done.
Get a letter from the BK attorney, the phone call is notice but go for notice and the reaffirmation in writing. :)
Verify the income, check references, and then make your decision. The bankruptcy means that they can't file bankruptcy again for another 7 years. Once the bankruptcy has been confirmed, and it obviously has been if it's ready to be discharged, they are free to do business as usual. In the past economy there are many people that have filed bankruptcy, trying to save houses, properties, etc., people that lost businesses, or jobs. It's not uncommon.
Thank you for the responses. Most of my tenants have credit problems and still pay their rent. I like the idea of them not having any other debt and not being able to file again.
I've had 2 that filed bk right after I leased to them. Like anything you have to get a feel for them. The first rented for 9.25 years and overall was good. The other one is just coming up on a year and all is well.
Those 2 examples aren't what I think will happen but real 'in the trenched' experiences. I wish there was more of that on this site.
It seems like lately you have to pick the lesser evil when leasing.
I agree Rob K that for you the "creditor" its attractive that they will be released from previous debt and wont be filing again anytime soon. I too have seen these situations work out well like in Ryan M. case