How Will I Find a Place to Live If I File for Bankruptcy?

by Brett Weiss, Maryland Bankruptcy Attorney · Posted in *Life After Bankruptcy,Consumer Credit Issues

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Many of my clients worry about where they will live if the file for bankruptcy and surrender their (usually far under water) house. They’ve heard horror stories about people with bankruptcies on their credit being unable to rent. But things aren’t as bad as they fear.

My usual recommendation is not to look at the traditional large apartment complexes. Many will, indeed, reject applicants with a recent bankruptcy on their credit.

Much more likely to rent to you 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.

The best bet, however, is usually 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 today.

A LWOB gives someone who has filed for bankruptcy a number of advantages. First, you can usually get a nicer condo, townhouse or single family home that might ordinarily be available for rent. Second, the landlord usually offers the LWOB because he or she can’t sell the property and is desperate for cash flow. This means that the landlord will usually care much less about your credit and the bankruptcy. Third, you are locking 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 finally, you are building up a substantial down payment if you decide to buy the property later.

How can you buy the property after a bankruptcy? Under current regulations, assuming your post-bankruptcy credit is good and you’d otherwise qualify (wages, savings and debt-to-income ratios are OK), you can get an FHA-guaranteed mortgage only two years after your discharge.