It’s important to understand how renting a future apartment and home will be affected when filing bankruptcy, but you also want to be cautious about avoiding these 8 bankruptcy mistakes.
The purpose of this article is to help you know how renting and bankruptcy work for you whether you just filed bankruptcy or whether you are considering filing bankruptcy.
Renting during and after bankruptcy is a valid concern. You need to be able to provide a home for yourself and your family. Some people resolve this concern by entering a new lease or rental agreement before they file for bankruptcy. However, circumstances can change quickly. Sometimes, a person may need to move in while they are in Chapter 13 or right after completing a bankruptcy case.
First, we will cover Chapter 13 bankruptcy and then the Chapter 7 bankruptcy. If you are unsure what you are going to do, you can understand the key differences in this article.
How Does Renting During Chapter 13 Bankruptcy Work?
While it may be difficult to purchase a home in a Chapter 13 bankruptcy, you may find help with renting an apartment.
During a Chapter 13 case, you cannot go into debt without court approval. However, a rental agreement or lease agreement for an apartment is not a loan agreement. You are promising to pay rent each month to live in an apartment or a house. You are not borrowing money. Therefore, you should not need court approval to enter a new rental or lease agreement for a home.
A few things to keep in mind when renting during a Chapter 13 case:
- Talk to your bankruptcy lawyer first. Some local rules might require you to get court approval or approval from the Chapter 13 trustee before you enter into a lease agreement.
- Make sure your attorney has your new address any time you move during your Chapter 13 case. You need to make sure you receive all notices and correspondence from your bankruptcy attorney, the bankruptcy court, and the Chapter 13 trustee.
- Keep your housing costs the same, if possible. Changing your housing costs could impact your Chapter 13 plan. If your housing costs increase or decrease, talk with your bankruptcy attorney.
- The Chapter 13 case does not impact the obligations created by the lease. Because you signed the lease after entering Chapter 13, the bankruptcy case does discharge your liability for the payments. If you break the lease, you are liable for any damages for breach of contract.
Talking to your bankruptcy attorney is strongly recommended before you enter a rental agreement during Chapter 13. The unique facts of your case could change the process of renting or leasing a home during Chapter 13.
Is Your Chapter 13 Payment Too High?
Some people choose Chapter 13 bankruptcy and then are unable to afford their bills due to the amount of their Chapter 13 plan payment, leading to a potential Chapter 13 dismissal.
As such, consider checking all of your debt relief options including Chapter 13 bankruptcy using the free bankruptcy and debt relief options calculator below.
Is Renting After Filing Chapter 7 Bankruptcy Difficult?
You are making the right decision to understand how renting will be affected when filing bankruptcy. Check out 8 other bankruptcy mistakes to avoid.
Most landlords run a credit check before entering a rental or lease agreement. The purpose of running a credit check is to determine how you handle money. Do you make your debt payments on time? Do you have foreclosures, bankruptcies, and debt collections?
Because your bankruptcy filing shows up on your credit report for seven to ten years, it is important to be upfront with a potential landlord. The landlord is going to find out about the bankruptcy, so heading it off is generally the best way to handle the situation.
Because of the bankruptcy, you may want to be prepared to pay a larger security deposit. Landlords may also require first and last month’s rent and have strict penalties for late payments.
Be open and honest about your bankruptcy filing. If there were extenuating circumstances, such as losing your job, a sudden illness, accidental injury, or the loss of a spouse, explain the circumstances to the landlord. If you have made the most of your fresh start from bankruptcy by keeping your bills current, your landlord may see your bankruptcy in a different light.
Landlords understand that people are facing tough financial times. If they can see that you have a steady income and used your bankruptcy filing to get back on your feet, they may be more likely to rent to you. Many landlords may consider bankruptcy a good thing. You got rid of your unsecured debts, so now you have more income to devote to rent or lease payments.
Tips for Renting a Home After Bankruptcy
It may be more challenging to find a landlord willing to rent a home or apartment to you after a bankruptcy, but it is possible. Some tips to keep in mind when renting after bankruptcy include:
- Ask questions before submitting applications. Ask whether the landlord rents to someone who has a recent bankruptcy before submitting applications. If the landlord has a policy of not renting to individuals who have just recently completed bankruptcy, you do not waste money on an application fee for nothing.
- Verify your income and employment history. Provide a letter from your employer confirming your employment history and rate of pay. You may also want to provide a list of previous employers with dates of employment. If you do not have gaps in your employment history, that could be a factor in your favor.
- Explain your situation. Prepare a letter explaining why you needed to file bankruptcy and how you have made the most of your fresh start.
- Search out, private property owners. Individual property owners do not need to work within the constraints of corporate policies regarding prior bankruptcy filings. A private landlord may be more willing to listen to your situation and make a judgment based on your current situation, such as a stable job, no unsecured debt obligations, and sufficient income.
- Be patient and shop around. It may take you several weeks of dedicated searching to find a suitable home to rent or lease.
- Have references ready. Ask your employer, past landlords, and roommates to write references for you. References from friends and family can also be helpful, but professional references generally carry more weight.
- Improve your credit score. Some landlords place a lot of weight on credit scores. We have some helpful tips for improving credit scores here.
- Provide your rental history. If you have a good record of past rent payments, include those records with your lease or rental application. Make sure to include the landlord’s name and contact information so that the new landlord can verify the records.
- Have a co-signer for the lease. If you have someone willing to co-sign the rental agreement, that can help you find a place to rent after bankruptcy. The co-signer is responsible for the payments if you break the lease. A co-signer with a good credit rating and steady income can quickly improve your chances of renting after bankruptcy.
The Bottom Line — You can rent after bankruptcy, but it may take a little more work on your party. The good news is that you are in a better financial position to afford rent payments because you were able to get rid of your debts through a bankruptcy filing.
Do You Need to File Bankruptcy to Get Out of Debt?
Filing bankruptcy to get rid of debts you cannot pay can help you take control of your finances. Most people file for bankruptcy because a life event that was out of their control caused a financial crisis.
If you have questions about filing Chapter 7 or filing Chapter 13, Ascend can help. We have resources available that allow you to compare debt relief options. You can also check to see if you meet the income qualifications for Chapter 7 or estimate a Chapter 13 plan payment.
Call us at 833-272-3631 to discuss our services, including the Savvy Method of paying off debt without bankruptcy.
We are here to help you choose a debt relief option that works for you. If you want to explore bankruptcy further, we can help you locate a bankruptcy attorney near you that offers free bankruptcy consultations.