One of the most common questions I receive is, “will bankruptcy affect my ability to rent?”
The short answer to this question is, “well, it depends…”. This usually means the answer is long and somewhat complicated.
Filing for bankruptcy can impact many things and the ability to rent a new apartment after your bankruptcy case is one of them.
First, if you are current on your rent payment and you want to stay at your apartment for the foreseeable future, then this question does not apply to you. You will not be affected in any way. You can stay in your apartment and continue to make payments just like before you filed bankruptcy.
However, if you are looking to leave where you currently live and hope to rent or lease a new place then a bankruptcy can impact your new lease application. But it is not always negative as most may assume.
When renting or leasing an apartment, house or condo, it is important to recognize that you are undergoing a competitive process. You are not in a bubble. You are competing with other applicants for the same place. Moreover different owners/managers may have different criteria for what they consider to be important factors. However, the owner/manager will generally pick the one with the best application. But what factors are considered in the application?
The most important factor in a rental application is always income. If you have a large and steady income that will easily provide for the rent, then you will be ahead. Bankruptcy does not in any way affect your income in your rental application. In fact, it may improve your income if the bankruptcy case stops a bank levy or wage garnishment.
The next factor is expenses. What kind of expenses do you have and is your income sufficient to cover them? This is also where information from your credit report can be taken into account. Nearly all rental applications will require your credit report. Your credit report will list your car payment and monthly required payments to your other creditors. Let’s say you hypothetically have $50,000 in credit card debt, with a monthly payment of $1,000 to $2,000 prior to filing bankruptcy. In this scenario, even though you did not file bankruptcy an owner/manager will be concerned that your ability to pay rent may be compromised by your monthly obligations to service your debt. Even though you did not file bankruptcy, your debt will negatively impact your rental application.
If you file bankruptcy, you will have $0 credit card debt and $0 monthly payments. The more debt that was discharged from your bankruptcy case, the more bankruptcy will help you with your rental application. So bankruptcy will generally help with this factor in relation to your rental application.
The next factor is your credit score. If your credit score was high (700 or higher) before bankruptcy, then filing for bankruptcy will lower your credit score. If your credit score was low (600 or less) it’s likely that your credit score will be higher relatively soon after filing bankruptcy. Most people contemplating bankruptcy already have a low credit score, so filing bankruptcy will give a positive bump. For those who have a high credit score, you must consider the supercedeing importance of the other factors (income/expense) and realize that a high credit score will not be enough to overcome a low income or relatively high expenses.
Another factor is whether or not you have ever filed bankruptcy. This is a question in some rental applications. For some large corporations, I have heard that they will refuse to rent to anyone who has filed bankruptcy in the last 2 years. For others, if you have a large amount of debt, they may prefer that you file bankruptcy to eliminate your outstanding debt.
Another important factor is whether or not you have ever been evicted. This is a very important factor and is usually given more weight than filing bankruptcy.
Filing for bankruptcy can impact your rental application in many ways. In some ways it will benefit your rental application, and for certain owners/managers it may harm your rental application. But the most important takeaway is that the rental process is a competitive process. If your application is better than the other applicants, you will most likely succeed. If there is another applicant that makes more money, has little to not debt, and great credit then you will most likely not be chosen in that scenario.
This article from Nolo also has some good information about renting and bankruptcy.
If you have any questions, or would like to discuss your options with a bankruptcy attorney, please contact our office at (818) 305-6200. We provide services to all of Southern California and Kern County.