I use to be a banker many years ago. In my credit training, I learned the applicant, or borrower, with a recently discharged bankruptcy was a better risk than one who was struggling to avoid bankruptcy. Makes no sense..right? The reason is that a discharged bankruptcy means no further obligations..they have been charged off! If you are still standing on the debtor’s obligation list, you are no longer fighting for the limited resources of the borrower with lots of other creditors. In fact, you might be dealing with the best borrower you will face in a month..except for that stinky bankruptcy.
In approving tenants applications, I have placed this training high in determining whether a tenant should be approved or not. Most people will pay their rent first in order to preserve their home for their family and self’s. Eliminate other obligations and as long as their rent to income ratio fit my model of comfort, there was something to be said for the lack of other obligations (in the case of a Chapter 7) or a set payment plan (Chapter 13) to assess the likelihood of their being cash issues for the tenant.
The other day, when presenting a tenant fresh out of a Chapter 13 I had a new owner say to me that they were not comfortable with the applicant despite my explanation of their strong income ratio and lack of other obligations. As I drilled into this issue, I saw it in a new light. This owner also has a banking background. He simply explained his reluctance as due to his belief that somebody who has found the ease of bankruptcy for discharging their obligations, may not see paying their rent as an obligation as noble as others. In other words (putting his concern into laymen terms) an applicant who freely decides to walk away from their obligations, no longer has a fear of having their credit destroyed by a new creditor. The applicants credit is already messed up. They also may not care as much about just letting new obligations go if faced with difficult times again.
An interesting perspective that has merit. It is the other side of the coin when reviewing this type of applicant. The question for owners is, does this concern outweigh the likelihood that you would extend a lease to such an applicant? Or does my long time position ultimately increase the likelihood of approving this tenant?
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Tags: Indianapolis Property Management, Indianapolis Property Manager, tenant qualifications, tenant screening, Wilmoth
