We worked with a client this week who was being denied an apartment in Edina, Minnesota because he had a bad debt to income ratio on his credit report. His credit report also said that he had lots of debt in collections. After we filed his bankruptcy, however, the landlord was willing to work with him.
Property managers and landlords look at renters’ credit reports to figure out if the prospective tenant will be able to afford the rent or not. People with lots of debt and collections, or even judgments, on their credit reports are in financial stress. Debt collectors are likely to be freezing the tentant’s bank account or garnishing their paycheck. When a tenant’s bank account is frozen, the tenant will have a hard time paying rent.
I represented a client this week who was applying for new apartments in Edina, MN, and the management company told him that they would sign a lease as soon as he had a bankruptcy filing number. We were able to complete his petition and the other bankruptcy paperwork quickly so that he could move in to a good apartment.
So why did the landlord want the prospective tenant to file bankruptcy? Because bankruptcy improves a tenant’s financial stability. It is better to have a bankruptcy on your record and no debt than it is to have lots of debt and no bankruptcy. Bankruptcy means that you no longer owe the debt, and that debt collectors can’t garnish paychecks or freeze bank accounts any more. It means that your credit score is going up every month instead of down because there are no more collections and no more missed payments being reported to the credit bureaus.
After bankruptcy, everything except student loans and car loans or mortgages that you reaffirmed should be showing as $0 balance, “discharged in bankruptcy”. This means that the bad debts won’t make any new negative remarks on your credit report. Thus each month after bankruptcy, your credit score INCREASES. Before bankruptcy it is common for someone’s credit score to decrease every month because of missed payments and debts in collection.
Just like car loan companies and mortgage companies, landlords realize that people are more financially stable after bankruptcy than before bankruptcy. They want to rent to someone who will be able to pay the rent every month without problems. They realize that bankruptcy helps with this by discharging debt and stopping debt collectors.
It is my prediction that as rents continue to increase, landlords will get better at working with people who have recent bankruptcies. One need only look back a few years to the foreclosure crisis and the housing bust for a similar scenario. Lots of people had to file bankruptcy because of the Great Recession, and all of the mortgage companies got good at working with people who filed bankruptcy recently. I regularly send the bankruptcy paperwork of my former clients to mortgage lenders so that they can buy new houses. Rarely does the bankruptcy make a problem for them. Many of them get FHA loans in only 2 short years after the bankruptcy discharge.
If your credit score is keeping you from getting a good place to rent, why not call Walker & Walker Law Offices, PLLC at (612) 824-4357 for a free consultation about bankruptcy. We specialize in disputing credit report errors after bankruptcy and get a fresh financial start.