Should You Worry if Your Tenant Has a Previous Bankruptcy

Should You Worry if Your Tenant Has a Previous Bankruptcy?


You want the best tenant in your property and often the best tenant is one with positive tenant history and a good credit report. When you think you have found the right tenant for your rental you will run a background check and with that check comes information regarding a past bankruptcy. What should you do from there? Do you reject a tenant because they have a past bankruptcy?


The Financial Factor

A past bankruptcy does show a level of financial irresponsibility on the prospective tenant’s part, but that does not necessarily mean they are a poor tenant. Hundreds of consumers file bankruptcy each month and with the declining economy and increasing unemployment rates, some consumers get over their heads in a matter of a few short months – thus, leading to bankruptcy down the road. Therefore, you should consider the reasons behind the tenant’s bankruptcy and take that into consideration. In addition, you should see when the bankruptcy was filed and how the tenant’s credit history has been since then. A tenant with a four year old bankruptcy and positive credit history to date should not be a cause for concern, while a tenant with a four year old bankruptcy and negative credit history to date should be.


The Legal Factor

When you reject a tenant for credit issues, you need to keep in mind that you have to reject fairly. If you have a zero tolerance for past bankruptcies for a 10 year period, then you must reject any and all applicants with a bankruptcy within the past 10 years – regardless of their reasons for filing bankruptcy and how their credit is to date. According to the Fair Housing Act, rejections must be kept on a level playing field, including credit history requirements. Therefore, consider your current rejection policy regarding credit scores and bankruptcies and make sure you apply that across the board.

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