Apartment Hunting Tips from a Bankruptcy Attorney

I decided to write this article after 12+ years of being repeatedly asked the same question: clients want to know how bankruptcy affects rental applications. Surprisingly, my bankruptcy clients will initially want to hold off filing bankruptcy until they complete their search and secure an apartment first. They believe it is in their best interest to wait. 

It is reasonable to hold this initial belief. 

Clients are concerned that a bankruptcy appearing on their credit report will automatically disqualify them. However, it is a mistake to assume this and I’ll explain why in this article.  Once you understand how a credit report works and how approval for credit is processed, you’ll see why “sooner is better” when it comes to filing for bankruptcy. 

A bankruptcy is not going to automatically disqualify you. Whether your application for rent (or any other extension of credit) is approved, will depend on your overall “Credit Worthiness.”

Myth #1:
“I’ll look better to a landlord before I have this bankruptcy on my record.”

Let’s explore the above statement, because sometimes it’s true, and sometimes it is not true. 

While a bankruptcy on your credit report is definitely not a good thing when it comes to applying for apartments (or any extension of credit), it can be better than the alternative. 

PERSON A (Before BK) — 1) credit report shows high balance of debt; 2.) there is an aggregate amount of minimum required payments per month; 3.) there may or may not be late payments

PERSON B (After BK) — 1) a bankruptcy filed under public record section of credit report; 2) zero to little outstanding debt obligations due to bankruptcy filing  3) any late payments are no longer of consequence due to the bankruptcy.

I’m just an attorney, and I don’t own any rental properties yet, but if I was a landlord, and given my intimate knowledge of the bankruptcy system, if all else is equal (income amount, stability of that income) I would prefer “PERSON B” because B has less financial obligations and would be more likely to meet the monthly rent obligations. 

As such, Person B is less of a “risk” to extend credit to.

Imagine if both Person A & B experienced a medical emergency– who would be better able to absorb the financial hit? The answer should be obvious– person B has cash flow and will be able to absorb the financial impact while maintaining required obligations such as rent, car payments, utilities, while person A will have to juggle between outstanding obligations and make difficult choices. As a creditor to person A, there is more risk of non-payment.  

This is why “apartment hunting” is a really bad excuse for waiting to file for bankruptcy. It does not actually make you a better quality tenant.

[In summary] Credit Worthiness
Lenders and landlords are judging how likely it is that you will pay your rent; or more accurately, they want to determine how likely it is that you may NOT BE ABLE TO pay your rent. A bankruptcy may actually IMPROVE your credit worthiness. (Read more, credit worthiness article)

Myth #2:
The Stigma of Bankruptcy 
“Bankruptcy” sort of feels like a dirty word, one that nobody wants to be associated with; however, while some people do hold this stereotype, most landlords will probably judge it for what it is. It’s natural for a renter to assume that they are automatically disqualified with a bankruptcy, but this is far from reality. While some landlords may hold stereotypes regarding bankruptcy and other things, it is safe to assume that they are logical creatures who will make rational decisions (sometimes people don’t make rational decisions though). 

The truth is, most people who go through bankruptcy also DO NOT go through bankruptcy again. Personally, I have hundreds of bankruptcy clients, and (knock on wood) not a single one has filed bankruptcy again in my over 12+ years of being an attorney. What this means is that people who have filed for bankruptcy (in my opinion) are actually strong candidates when it comes to renting an apartment. They’ve cleaned up their finances and have incentive to be good, and be better going forward. I would hope that rational landlords can and do come to the same conclusion. Be confident that humanity will be rational!

Apartment Hunting Tips

1. Try to go for “mom and pop” landlords over larger companies. It is far easier to make a deal directly with the owner/manager of a small property. Sometimes these owners won’t bother running your credit because they’ve been so successful with their gut instincts in the past. Remember to BE HONEST and UPFRONT about your bankruptcy status– someone that is direct about their financial situation displays more financial responsibility. And even if they do run your credit, they might be more understanding of your situation than a large corporation with inflexible rules and policies in place. 
2. Give yourself a fixed window to apartment hunt. Say, “30 days” for example. If you don’t find an apartment within that time frame then you file for bankruptcy. 
3. Don’t wait to hire an attorney. Hiring an attorney and actually filing are 2 different things. You can hire your attorney first, prepare all your documents while you apartment hunt, then eventually file AFTER you’ve secured your apartment. 
4. Hunt during the holidays. Most renters wait until it’s convenient to look for new housing– so after the holiday season. Renting season usually peaks in the summertime. This means if you search Thanksgiving through New Year’s, you won’t be competing with most of the renters in the market. This means landlords with vacancies have less qualified candidates to choose from, and you may just qualify for a unit you otherwise may have missed out on.
5. Literally DRIVE around and look for “for rent” signs. This is how you find the “mom and pop” landlords (from #1). Often, landlords that use “for rent” signs are usually not using the internet. This means you have FAR LESS competition when applying for these units.
6. Stop stressing about late payments. Do NOT try to time your bankruptcy filing to avoid late payments. Many people attempt to do this but it does not benefit you or your credit score in any way. 
7. Explore the suburbs and consider public transportation. Nobody wants to hear this last one– but if your area is expensive, consider downgrading to a less expensive area. Maybe you can live farther from work and save additional money by taking public transportation. If you’ve never considered these ideas just keep them in mind.

At the end of the day, you need to do what’s best for you. And only you know all the different variables and factors going on in your life. I hope that I have raised the most important issues for you to consider and dispelled a couple myths. 

This article is meant to be informative only and not to be considered “legal advice.”

If you’re looking for a FRESH START and want some legal advice, I offer new clients a complimentary consultation at no cost or obligation to you. 

Just Contact Me and let me know how I can help. 

–Chris