Many people think that bankruptcy only affects homeowners, but this is not the case. If you are a renter and you file for bankruptcy, there are some things you need to know. Here is how bankruptcy can affect renters.
The first thing to understand is that if renters file for bankruptcy, their credit score will go down by an average of 250 points. This can make it difficult to rent in the future as landlords may be hesitant to rent to someone with a lower credit score. Additionally, if an individual has a cosigner on the lease, they may also be affected by a bankruptcy filing.
Another way that bankruptcy can affect renters is through eviction. If a renter files for Chapter 7 bankruptcy, the court may order an eviction from the rental property if the landlord has proof that the renter can no longer afford the rent. However, if a person file for Chapter 13 bankruptcy, they may be able to stay in their rental unit as long as they continue making regular monthly payments.
Defining Bankruptcy and How It Works
Bankruptcy is a serious financial matter, designed to provide relief to individuals who are unable to pay their existing debts. Chapter 7 and Chapter 13 bankruptcies are the two common types of bankruptcy available under federal laws. Chapter 7 is a liquidation type of bankruptcy, meaning many of the debtor's assets are seized and used to repay creditors.
Chapter 13, on the other hand, is a type of reorganization bankruptcy that involves repayment plans for creditors developed over 3-5 years by utilizing disposable income as determined by federal guidelines. When filing for either type, companies and individuals can be granted an automatic stay that prevents harassing phone calls or collection efforts from creditors. Ultimately, bankruptcy offers an important outlet for those facing insurmountable debt but should only be considered after weighing all of the risks and benefits.
Understanding Credit Scores
A credit score is an important measuring tool that lenders use to assess creditworthiness when evaluating borrowers for credit cards, mortgages, loans, and other types of credit. A credit score is a three-digit number from 300 to 850, with higher scores indicating higher levels of creditworthiness. It is essential to monitor credit scores closely because they can affect whether or not an individual is approved for credit, as well as the interest rate a lender may assign to a loan.
By having reasonable credit management practices in place, like keeping credit card payments up-to-date and maintaining low debt-to-income ratios on student loans or private loans auto payments, it’s possible to positively impact a credit score – which can help individuals gain access to better terms when obtaining credit products like mortgages and car payments.
How Does Bankruptcy Affect Renters Specifically?
Bankruptcy can have an especially profound effect on the ability of renters to acquire or maintain a lease. The eviction process begins if the renter failed to make their payments or otherwise violated the terms of their lease.
In general, bankruptcy will not prevent a renter from entering into a new lease; it may mean that they will find themselves facing more difficulty in being approved and finding adequate housing. To ensure that a renter is eligible for a lease, some landlords may require a cosigner or references, typically along with larger deposits and evidence of employment and good payment history before they will accept an offer. For those who have previously filed for bankruptcy and are returning to the rental market, having reliable references is essential in establishing a positive rental history and improving creditworthiness.
Benefits and Drawbacks of Filing for Bankruptcy as a Renter
Filing for bankruptcy as a renter has both its benefits and drawbacks. With automatic stay protection, filing for bankruptcy can help prevent landlords from evicting renters until the court process is complete. Bankruptcy also allows renters to reduce their debt or even discharge it completely - offering immediate relief in the form of not having to manage such large payments moving forward.
On the downside, automatic stay protection prevents landlords from evicting someone, but it will not protect renters if a judge orders an eviction due to failure to comply with legal requirements like rent payments or other conditions of tenancy. Ultimately, filing for bankruptcy as a renter should be carefully evaluated on an individual basis with expert guidance to understand the full impact it may have.
Additional Considerations for Renters
Taking on a tenancy is a big decision, and there are several potential pitfalls to be aware of. As part of the application process, tenants should consider what costs for utilities might be included in their rent, as well as their rights and responsibilities with respect to repairs and renovations. Security deposits are a frequent requirement these days, and prospective tenants should carefully research the amount that is due prior to signing any documentation. Finally, it is also important to review all tenancy-related terms and conditions before committing, ensuring that everything looks agreeable in order to avoid any complications down the line.
Bankruptcy is a complex process that can help those struggling with debt get relief, but it should never be taken lightly. For renters, bankruptcy could protect them from eviction but could also make renting more difficult in the future.
If you are considering filing for bankruptcy, it is important to speak with an experienced attorney who can help guide you through the process and answer any questions you have about how it may affect your specific situation. Contact our firm for more information.