Can You Rent an Apartment if You File for Bankruptcy?

Bankruptcy allows debtors to finally gain some breathing room from their crushing debts. They can either eliminate certain debts quickly (with a Chapter 7 filing) or chip away at debts over 3-5 years (with a Chapter 13 filing). Either way, the bankruptcy will end up on a person’s credit report, which means that any landlord who pulls a report will find out about it.

Bankruptcy is an excellent tool for certain debtors. However, there are some negatives which every lawyer should discuss upfront. Having a bankruptcy on your credit report can make it harder to rent an apartment in the tight California real estate market, as ourSan Francisco bankruptcy lawyer explains below.

Are You Currently Renting When You File?

Some debtors who file for bankruptcy protection are currently renting. You could be a couple months into your 12-month lease when you finally take the leap and file for bankruptcy. What happens then?

A lease is a type of executory contract, meaning both sides must continue to perform. For an apartment lease, the tenant will continue to make monthly payments, while the landlord continues to allow them to stay in the apartment. This is a classic executory contract.

Under the bankruptcy code, you will have a choice to make. You can assume or reject executory contracts, including your apartment lease. This is the perfect time to really sit down and figure out if you can continue to afford your apartment or if you even want to stay. It’s possible—and 100% legal—to reject your lease. That means you will get out of having to make any more rental payments. Of course, you’ll also need to leave the apartment—but you won’t face any legal penalties.

For example, suppose you decide to reject your lease when you still have 10 more months left on it. The landlord cannot come after you for unpaid rent if you reject the lease in bankruptcy.

However, if you assume the lease, then you will need to keep making payments going forward. If you stop, then a landlord can then move to evict you.

Are You Hoping to Rent an Apartment after Filing for Bankruptcy?

Many people who file for bankruptcy eventually end up seeking a new place to live. This means the bankruptcy filing is on their credit report. These bankruptcies don’t fall off for a long time:

• Chapter 7: This bankruptcy will stay on your credit report for up to 10 years from the date you filed.
• Chapter 13: This bankruptcy stays on a credit report for up to 7 years of the date of initial filing.

Many landlords are alarmed to see any collection accounts or defaults on a credit report. They might refuse to rent to you because you filed for bankruptcy. Helpfully, there are steps you can take to make yourself more attractive to landlords:

1. Show steady, significant income. You want to show a landlord that you can make the monthly rent payment despite your past financial difficulties.
2. Improve your credit score. You can try for a secured credit card or credit builder’s loan. Remember to make full and timely payment. A growing credit score can take some of the sting out of a recent bankruptcy.
3. Offer a larger security deposit. Some landlords want first and last month’s rent as security. You can offer to pay a couple extra months’ rent right up front to make yourself a more attractive tenant.
4. Get a cosigner. You might have someone else sign on the lease with you, e.g., a parent. If you have a roommate, then they can be on the lease, also. A cosigner provides additional protection because the landlord will come after them for unpaid rent.

Whatever you do, stay current on debts. If you have entered a Chapter 13 payment plan, then do everything to stay current. That will show you are on firmer financial footing.

Some people need to stay with family or friends until they re-establish themselves. The negative effects of a bankruptcy filing should lessen as the years roll by.

Should You Avoid Filing for Bankruptcy?

It depends. On the one hand if you are considering bankruptcy, then your credit might be shredded anyway. A landlord won’t look favorably at a credit score in the 400s with several accounts in collections. At that point, you might not have much to lose by going ahead and filing for bankruptcy protection.

Some landlords might even see a recent filing favorably. Why? Because you can’t file again so quickly. Debtors must wait a certain amount of time between bankruptcy filings. A landlord knows you won’t be able to run off to court and get out of a lease that you signed if you have a recent filing.

Whether to file for bankruptcy is a complicated analysis. There are many considerations, including:

• Your mix of debts. Bankruptcy can eliminate (discharge) some debts but not others. If you mostly owe unpaid child support, then filing for bankruptcy is probably not for you.
• Your current income and expected future income. You might be in line for a raise and not need to file for bankruptcy.
• Whether you own property which is exempt in the bankruptcy proceedings. You might not want to file for Chapter 7 protection if you end up losing assets.
• Whether you are getting divorced or married. These factors can influence the timing of your bankruptcy.

Are you hoping to rent an apartment? That is also a consideration that should go into the analysis. Some people try to get an apartment first and then file for bankruptcy protection. They then assume their rental lease because they want to stay in the apartment.

Speak with a San Francisco Bankruptcy Lawyer Today

At Resolve Law Firm, we avoid “one size fits all” solutions. Our clients come from various backgrounds, with different levels of income. We work with them to determine the best way to address their debts. The key is to find the right solution to your problem. Call us today to schedule a free consultation with our experienced bankruptcy attorney.