Renting to tenant with history of bankruptcy?

Question

I used SmartMove for a credit/background check of a tenant. They filed for bankruptcy 10 years ago, but it is still showing up on their credit report. They have a very high salary for how much they are renting for though. The website recommends I decline them, but they seem like a good tenant otherwise. What are some other factors to take into account, questions to ask, or other ways to protect myself in this case? Thanks!

David Dachtera · Answer

Ray S.,

I would look at the first applicant's earning history since the BK.

We tend to look down our noses at BKs, but the truth is stuff happens: job loss, divorce, health issues, ... It's the same as looking at a credit score: it don't say spit. You want to look at the content of their credit history, not a snapshot-in-time number (which will probably have changed by the next time the calculation is run).

If the earnings history is there with a solid payment history, I personally would give that more weight than the result of some algorithm.

...but that's just me. I was in IT for 32 years - I don't trust machines any further than I can throw them. Same for programmers, analysts, etc.

David J Dachtera

Account Closed · Answer

Are your requirements 3X rent?  When you fill out the info for Smartmove to accept or reject, do you also include the amount of the rent and what their income is and your criteria?  Or is it just based on credit?  I've never seen a Smartmove printout.  If Smartmove said to accept, with all the pertinent info, then I'd take this applicant based on that recommendation.

Is the bankruptcy a Chapter 13?  Are they still making payments?  If they are still "in" bankruptcy, then they are a risk, because my understanding of a Chapter 13, is that they can still rewrite it or add someone.  Do they have a bunch of new debt, even if the payments were made on time?  What's their debt to income ratio?

But, I'd rather take someone who manages their money well - regardless of how much income is involved, so I'd take the applicant with the 2.3x rent over the other who makes great money - yet still had to file BK.  Even if it was 10 years ago.

And by the way, if you just make your criteria that your applicants must get an okay from your screening service - then your decisions will be much easier.

Thomas S. · Answer

The credit report will tell you far more that their credit report and should be analysed to fully understand their present spending habits. What percentage of their available credit is used.

If they are still living on credit to it's limit, which is why they are renting below their income level, then they are high risk.

Your second applicant may turn out to be far more reliable. You need more info on the first applicants credit history before you can decide.

Chris Erwin · Answer

Ray S.

The bankruptcy should be coming off their credit report soon if it's been 10 years ago. Everyone has their own opinion, but what I look for is good financial decisions after someone has filed bankruptcy, and the length of time it's been since the bankruptcy. I would ask them for more details about the bankruptcy to get an idea of why they filed.

Matt Turbitt · Answer

personally I wouldn't weigh a 2006-08 bankruptcy as heavily as as a 10-13 bankruptcy. I'd lean toward this applicant though my only worry would be that they may not be likely to re-up next year.

Brian Mathews · Answer

I've got a BK from about 10 years ago.  I changed careers, took a large pay cut.  Had it all worked out.   Wife is a nurse, I'd recover my wages in about a year.   Then she got hurt at work.   She had to quit due to them forcing her out and we had to eat a lot of medical bills.   That and my pay cut crippled us.   I tried to work out with creditors and they told me to suck it . I was backed into a corner and did what I had to do.   We're all good now.

Ray S. · Answer

They show 7x income to rent, with proof of income, don't have any evictions or late payments. Overall they seem like a good tenant. Their bankruptcy was for personal, poor money management reasons from a prev marriage, not anything business related, it was actually just under 10 years ago, so it will probably be cleared soon. Did smartmove reject them solely for having an open bankruptcy?

Meanwhile I have another tenant I screened which came back as accepted. They have only 2.3x income to rent, but have strong credit and nothing else on their record. Should I consider a tenant with a low income to rent? And if so, are there any other qualifying questions I could ask?

Thanks!

Penny Clark · Answer

Ray, the bankruptcy should have expired after 10 years. How does the rest of their credit history look? Are the majority of their accounts in good standing? No or very few late pays?  Can they afford your rent and still make payments on their other bills? Is their income is verifiable and strong 3-3.5 x the rent and do they have no evictions or history of paying rent late? If you can say yes to these questions, then you may want to approve them. I look at all these things whether applicant has a bk or not.

Renting to tenant with history of bankruptcy?

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