There really are more renters today than ten years ago. Over the last ten years our tenant background screenings have produced many interesting new challenges. For instance, credit scores average much lower. Many of these deflated scores are a result of unpaid student loans. This is a fairly new phenomenon. Another interesting observation is that very few applicants seem to have been in a job for more than a year. We use to say a year on the job was the baseline. We could not rent to anyone if we still used that standard. Also there are more applicants in bankruptcy or with a recent discharge of a bankruptcy. Bankruptcy produces a special challenge for rental approvals. To apply for your rental, applicants should not be in the bankruptcy legal process. Stay away from applicants that look like they might file or tell you they are filing. The reasons are numerous and fairly legal but an active bankruptcy with a tenant will expose yourself to an unacceptable risk. Only consider applicants with a discharged bankruptcy! Even then, you likely need to know more about this financial event in your applicant’s life.
Here are four important considerations when discussing renting to an applicant with a past bankruptcy.
Length of time since discharge: Bankruptcy over two years from the discharge date is usually something that should not weigh heavily in the approval decision. Look to determine if the applicant has started to reestablish their credit and there is recent good credit performance to consider.
A recent discharge may produce your best tenant: The applicant with a recent discharge (less than six months ago) has little to no debt to service and is likely in as clean of a position as any tenant without a bankruptcy.
Why the applicant filed bankruptcy?: It is helpful to gain an understanding beyond the credit report…such as what caused the bankruptcy. Did the applicant incur a sudden, unexpected, crush of medical expenses? Or did they live a lifestyle financed by credit cards, that eventually collapsed? Bad things happen to good people and they may have to turn to bankruptcy to right the ship. This is why bankruptcy and its legal protections were originally created. As credit has become more easily obtained, the use of bankruptcy has increased. Use of credit is possibly a warning flag for the landlord as to how the applicant chooses to handle their credit commitments post bankruptcy.
How many times have they filed? People do not reach the decision to file bankruptcy easily. It may be the end result of many years of avoiding creditors. Having filed a bankruptcy allows a person to learn the ropes of avoiding their debts completely. It hardens some people and makes them more knowledgeable of the ropes and loopholes in the creditor system. They may not ultimately be as concerned about damaging their credit again. Your best applicants use their bankruptcy to correct their lives and do not return to old mistakes and behaviors. Multiple bankruptcies are troubling.
Like many things in life, experience is the best teacher. If all that is considered is the applicants credit, the narrow vision presented may magnify the bankruptcy to the point where no applicant will be approved. We believe that in order to thoroughly review and consider the applicant, with a bankruptcy, the screening must go deeper. We pull tenant histories and employment verification. We look at criminal background checks. These all add to the profile of who is the applicant.
Bankruptcy happens to some really good people who may ultimately be great tenants. There is more to a person than just their credit history. The trick is to figure it out prior to signing a lease.