Renting to an individual who Filed Chapter 7 Bankruptcy and foreclosing on home

12 Replies

Would it be much of a risk to rent on a month to month to an individual who filed  chapter 7 Bankruptcy back in 2012 and is forceclosing on his home this year? I have only had 2 applications turned into me, in a  2 month period, a now reduced rental that is only $575.00 per month. He has a good paying job and makes over 3Xs the rent, though if appearances mattered he is something of a country boy that loves his guns the confederate flag and camoflouge wardrobe from head to toe. The appearance issue was only a concern due to the neighboring tenant who has stayed with me now for nearly 4 years now which I dont care to disturb with a new renter who is far different in lifestyle. I have protective clauses that shield my tenants from harrassment from other tenants; so hope this aides my concern on that.  I recieve several inquiries weekly but from perhaps every other living creature of a renter than decent law abiding ones and 2014 will be memorable for me.

I personally wouldn't. Even though he makes enough those 3 concerns you have wouldn't be worth the risk for me.

I typically when dealing with someone with a checkered payment history, but make plenty of income is I require more money down.  So larger security deposit, and I tell them I need three months prepaid.

I also use this same method for people in between jobs but have offer letters/contracts etc. But show they have income.

@Kenneth Davis  If the bankruptcy has been discharged then he can not include his rent  in the bankruptcy.  If he is currently going through it, then at anytime he can add you into it.  If that happens then you have to hire an attorney and you can't do a normal eviction.  The eviction would have to go though the bankruptcy court.  He could be in your property for months before you can gain procession of your investment.

I always stay clear of bankruptcy, but I don't mind people going through foreclosure.  I do make sure that the rent amount is less then the mortgage payment and their work history is strong!

To rent?  They are a better risk as they can't file during the term of your lease or after so they can't hang you!

Underwrite where they are, not where they were, reason for BK and FC, was it due to gross mismanagement of their money or did the have medical issues or loss of job, things beyond their control. Look to other accounts, history prior to the problems.

I have rented to many with BK and a FC, they usually have had debts restructured and in better financial shape than others who could end up doing the same thing if they lost a job.

Seems most LLs simply look a ratios and credit, while that makes life simple they are probably turning away good tenants, you need to look deeper.

Now, if they went that route just to dodge creditors, that's a character issue, if there was a good reason and they tried but couldn't that shows good character traits, for a rental situation. Don't take the lazy way out, learn to underwrite and evaluate the character as well as capacity and credit at the time of application.

BK should be discharged, ensure there is no lingering deficiency judgment.

However, if a BK is not discharged rules apply as they can't enter into business activities after filing and be protected from new debts created. Such laws apply as during BK people have to conduct business transactions to live, they have to live somewhere, they have to get the car fixed or buy one, so after filing there is a short window to add creditors and new debts or obligations created after filing won't be getting the same treatment as the old creditors. If they have not been discharged they can give you a form to affirm the debt or reaffirm the debt keeping you away from the issues.


I believe his BK was discharged and he appears to have held a job longer than two years. Thanks to the feedback hope to clear a few more unanswered questions in his application on my own.  I still have to confirm the house forclosure I believe he told me he was in the process.

I never met anyone who told me they had a foreclosure that didn't have, I never confirmed that, just take their word for it. You interview with them should tell you what happened, use your internal lie detector, disregard fluff and blame, best I can tell you here.

Yes he told me he is behind payments and foreclosing due to the value of the house dropping from when the housing market crashed a while back. I cross checked his application and even went the extra mile with a web based search to confirm the addresses he mentioned along with any unmentioned. He is probably as worthy a chance on a month to month as any in my area. I confirmed his BK was discharged and I will just require the security deposit with first rent for the M to M lease.

I hope one day will come that I dont have to ask so many questions and be able to  offer sound advice from the many experienced great professionals on this site. I think it may be a while though, as each passing year new rental challenges occur.

Kenneth, I completely agree.  Seems like we figure out what our policy is for lots of different scenarios, but they keep throwing different things at us.  I would prefer foreclosures and bankruptcy over evictions.  Additional deposit was mentioned, but getting a co-signer might be a route to explore as well.

The real questions is why you are getting more applications, and higher quality folks kicking the tires.  I wish we got 10 applications with each opening and we fall short of that, but sounds like you are well short of that.

Do you compare your marketing to others in the area?  Are there Facebook pages for your area to get more traffic to your marketing?  Do you know other landlords in the similar market to benchmark with?  Can you try to attract a niche market by changing marketing or a criteria?  Do you need to influence something about the property or neighborhood to make it more desirable?

2014 has been a rough year for us too, hang in there!

@Kenneth Davis  you should have told him instantly that the value of his home had nothing at all to do with the payment obligation. He was mixing asset valuations with a cash flow or management function, they are unrelated.

When you get an answer like that there are two issues, 1. he's lying (another issue) and isn't telling you the real cash flow matter or, 2. he is using the lost value of the home as a justification to avoid his contractual obligations. Neither is good.

With this thinking, if he mismanages his money and gets behind on his obligations he may think he can short his rent payment, with his thinking he might see another rental that is nicer for the same or less in rents! There is no integrity there, he may only look at what he sees as best for him at the moment instead of keeping his word.

When I interview someone the first thing I look for is integrity, I must be able to develop trust to go further. If someone is blowing smoke at me or avoiding questions they will do the same thing later on in the contract, they will make excuses, they won't answer the phone or letters, they won't confront some matter truthfully. I can work around past mistakes, financial issues, bankruptcy or foreclosure if someone is open and honest, I can't work around trust!

If I sense they are embarrassed and that's why they react as they are, I drop back into some personal financial consultation teaching the right approach (and attitude) toward obligations, I tell them any creditor has to trust them first before going further. If they can't get past that and just won't come clean with me, they are out of there, rejected!

A sinner that repents is forgiven, one who continues to sin is no, that applies in business too.  :)      

I did confirm his Bankruptcy was discharged back in 12/2012, Monthly income is 4Xs the monthly rent and has been able to keep his job for 2.5 years. He had an arrest for possession in 2001 with charges dropped for weed, He did not fill out the application as I have seen other more respectable tenants have and claimed he has bad memory of his a past rental; which I got scant information back through a search on a site equivalent to Peoplefinder. He is the best of the bad apples that North Florida seems to churn out in mass volume and so I thought by my placing him on a month to month cannot be too bad of a risk. Maybe due to luck and a strong legal lease I have never had the pleasure to evict any tenant in my 9 years as a landlord, though I due study the process just incase. I did conduct a short search online for the question of filing criminal charges against a bad tenant should this ever occur which I hope doesnot; found an vague article on AvvoAdvisor which mentioned the  requesting of restitution for any damages caused by a tenant; so I am likely to explore such charges if need be.  My lease I think sets an organized professional tone on the management of my properties with the reward of several of my tenants staying years, versus a few months. 

    Before lease signing I give ample time to review the lease and sometimes like this mans case gave him a sample copy to take home to peruse the clauses and yes check out the facts on his own. Got all of my inspections done on all appliances and structure along with written documentation, still photos and live recorded video of the entire rental prior to all lease signings; even used food dye to show the water better on video for all drainage fixtures!. This new tenant as with all tenants know I take good care of my properties and have the documentation to prove it and time will tell with this new tenant. I have an everything is in writing policy, even if during phone conversation I have to write it down, with signatures required or RTS (refused to sign) filled in the blank, so any sob story will be documented for rent etc. and all tenants know I provide an audit of violations if requested. I hope he turns out better then the last bad apple who is voluntarily leaving after moving in last month for refusing to have his electricity turned on.

I don't consider recent evictions, but with foreclosures I'm more forgiving given the housing crisis that just happened. If everything else is good, I would consider them, maybe with first and last months rent.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here