Thanks in part to the economic crunch happening across the country, more and more people are resorting to bankruptcy to get them out of the debt they’ve accrued. Should bankruptcy be a red flag for a possible problem tenant? And can a landlord reject an applicant because they’ve filed for bankruptcy?
In short, yes, landlords do have the right to set specific tenant selection criteria — including bankruptcy filing — as a reason for rejecting an application. Federal fair housing laws do not include a protected class for financial status. Whatever criteria the landlord sets up, he/she must be fair and apply that criteria across the board to every applicant.
Is it always the wisest decision to bounce an application because of a bankruptcy filing? That’s hard to say. Bankruptcy is a legal right allowing relief from certain debts, but a landlord wants a tenant who has a fairly solid history of managing his finances. A bankruptcy filing indicates the applicant was unable to meet his financial obligations during a certain period.
But a landlord should take a look at the circumstances and timing surrounding the bankruptcy filing. Bankruptcy stays on one’s credit report for seven to 10 years. If the prospective tenant is nearing the end of that time period and has had a clean credit history since then, there’s a good chance he/she has put their financial troubles behind them. Talk to the applicant about the underlying cause for the bankruptcy, and see if those details check out in the applicant’s credit report and background check.
Finally, some landlords believe that if the applicant has adequate income to cover rent and living expenses, he is probably in a better position to be a qualified tenant than before the bankruptcy. Since bankruptcy discharges old debts, freeing up the applicant’s income for present expenses. Also, bankruptcy cannot be filed again for several years, which means those who’ve been down that road once are highly unlikely to go there again.
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