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Tenant Selection and Bankruptcy Influenced by Financial Factor


Keeping the financial reasons as the main aspect, landlords take high security in the selection of Tenants, and avoiding the cases of bankruptcy. Different scenarios are associated with the dealings of bankruptcy cases to meet the future financial obligations. Any landlord who knows that bankruptcy is a legal right will definitely like to hire that tenant which has remarkable history of credit management.

Can a landlord legally reject applicants who have filed bankruptcy?

Yes, landlords have the right to set specific tenant selection criteria which can include bankruptcy filing as a reason for rejection of the application. Federal fair housing laws do not include a protected class for financial status. If the landlord’s criterion is rejection of every applicant who has filed bankruptcy and the criterion is applied to every applicant without discrimination, the rejection of the application is a legitimate business decision by the landlord.

Why would a landlord want to reject an applicant who has filed for bankruptcy? The primary reason is financial. While recognizing that bankruptcy is a legal right allowing relief from certain debts, a landlord wants a tenant who has a satisfactory history of credit management. Specifically, the landlord wants a tenant who has the ability and willingness to pay rent. A bankruptcy filing indicates the applicant was unable to meet his financial obligations during a certain period. The underlying event necessitating bankruptcy may have compromised the applicant’s ability to meet future financial obligations. The landlord may not want to take a chance.

However, some landlords set financial criterion that allows some flexibility in evaluating bankruptcy filings. These landlords may give greater importance to the applicant’s credit management history since the bankruptcy filing. For example, a bankruptcy filing will stay on the applicant’s credit record for seven to ten years, depending on Chapter filed under. If the applicant is nearing the end of the record period, and the bankruptcy has been fully discharged, the landlord, while still taking the bankruptcy into account, may focus on the most recent year period of credit history (for instance, the last three or four years.) The landlord may elect to offer tenancy based on acceptance of conditions such as a co-signer or guarantor, a higher security deposit (as allowable by state statute), or a shorter-term lease. The landlord is still bound by fair housing laws and cannot discriminate by selectively offering different terms to different applicants.

There is another consideration in that, assuming an applicant has adequate income, he should be more credit worthy after a bankruptcy than before. First, discharged old debts will no longer have a claim on future income. Second, bankruptcy cannot be filed again for a number of years.

The important issue for landlords is to establish selection criteria that makes good business sense and to evaluate every applicant against those standards without discrimination.

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