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Can I Rent a Home After Bankruptcy?

February 1, 2011

Many of my clients worry about being able to rent a new place to live after filing for bankruptcy and surrendering their (usually underwater) house. The concern is often founded in the belief that people with bankruptcies on their credit report are unable to rent. Fortunately, things aren’t as bad as many clients fear.

My usual recommendation is for the clients to look at properties for rent by owner instead of traditional large apartment complexes. The more traditional complexes tend to be more inclined to reject applicants whom have a recent bankruptcy on their credit.

Much more likely to rent to applicants with recent bankruptcy filings are individual landlords. They are usually far more concerned about you, the individual, than about your credit. A good job and first and last month’s rent often are sufficient to satisfy these landlords. Particularly, in light of the current state of the real estate market, many landlords are eager to rent out their properties and are more willing to overlook something like a bankruptcy on the potential tenant’s report.

Another, and even better option is a “Lease With Option to Buy,” or LWOB. This is a special form of rental, typically involving three provisions in addition to the usual rental clauses:

1. You have the first right to buy the property at some time in the future (usually 2 or 3 years);

2. Some or all of your monthly rent payment is credited to the purchase price if you buy the property; and

3. The purchase price is set at the date of signing.

A LWOB has a number of advantages, which include being able to rent a nicer condo, townhouse or single family home than might ordinarily be available, being able to lock in the potential purchase of the property at today’s lower prices, rather than the price the property might sell for in 2-3 years, and building up a substantial down payment on a property you might decide to buy.

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