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

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

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.

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Brett Weiss, a senior partner at Chung & Press, LLC, represents people and businesses in all phases of bankruptcy. He has experience in complex individual Chapter 7, Chapter 11 and Chapter 13 bankruptcy cases, and in Chapter 11 small business restructuring and reorganization. Mr. Weiss lectures nationally on bankruptcy issues. He has testified before the Federal Bankruptcy Rules Committee, the Consumer Financial Protection Bureau, and has twice testified before Congress on bankruptcy and credit issues. Brett Weiss is the co-author of Chapter 11 for Individual Debtors, and has written Not Dead Yet: Bankruptcy After BAPCPA, for the Maryland Bar Journal, as well as hundreds of blogs for the Bankruptcy Law Network. With his law partner, he recorded a 13-hour basic bankruptcy training series, and leads intensive three-day Chapter 11 training boot camps. Mr. Weiss has received international media attention in connection with his work. He was interviewed by Barbara Walters on The View, has appeared on the Today Show, Good Morning America, ABC News with Peter Jennings, the Montel Williams Show, National Public Radio, AARP-TV, the BBC World Service, German state television, and numerous local radio and television programs, and been quoted in Money magazine, The Washington Post and The Baltimore Sun, among others. Brett Weiss is the Maryland State Chair for the National Association of Consumer Bankruptcy Attorneys, a founding member of the Bankruptcy Law Network, on the board of the Maryland State Bar Consumer Bankruptcy Council, and a member of the American Bankruptcy Institute, the Bankruptcy Bar Association of Maryland, and the Civil Justice Network. He has been recognized as a “Super Lawyer” every year since 2007 for Maryland and the District of Columbia, and in 2011 received the Distinguished Service Award from the National Association of Consumer Bankruptcy Attorneys for his work on behalf of consumers across the country. Mr. Weiss is admitted to practice before Maryland and District of Columbia federal and state courts, the United States Courts of Appeals for the DC, Fourth and Eighth Circuits, The United States Tax Court, and the Supreme Court of the United States, and has been practicing law since 1983.
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