Why rent to someone who's filed bankruptcy?
You're in the property management business to make money, not to provide charity or to give someone a second chance. However, there are many reasons why people with blemished credit can make great tenants.
Reason #1: The recently bankrupt can be financially soundMost bankruptcies are caused by one of three things: Medical bills, job loss and divorce. These are often one time events. Credit scores reflect what happened in the past. By considering the individual circumstances of potential tenants, you can be fairly confident whether their financial future is stable. In addition, Chapter 7 bankruptcies eliminate most debt, and Chapter 13 bankruptcies make them more manageable. This means someone with a bankruptcy may very well be in better financial shape than someone with a great credit score who is drowning in debt.
Reason #2: The recently bankrupt can't file bankruptcy againOnce someone has filed bankruptcy, they can't file again for years. On the other hand, someone with clean credit can run into financial difficulty and then file bankruptcy, wiping out their debt including back rent. With the recently bankrupt, you'll always have a legal recourse for rent repayment that can't be wiped out again in bankruptcy courts.
Reason #3: You can reduce your riskPotential tenants with blemished credit understand that their options are limited. They may be willing to consider higher security deposits, higher rents or other concessions. All of these reduce your risk.
Reason #4: The recently bankrupt are an underserved marketMany large properties base their decisions solely on credit scores. This restricts their pool of potential tenants. By considering all applicants regardless of their credit past, you can find some great tenants who have limited housing options. You may be able to rent your properties quicker and your tenants are less likely to leave.
Reason #5: You can always say noIt's always your decision. If you are uncomfortable with a particular applicant's current financial situation, you can choose not to rent to them. But if you are willing to learn their story and dig deeper in to their current situation, you may just find some fantastic tenants.