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CalAttorney2, Lawyer
Category: Real Estate Law
Satisfied Customers: 10244
Experience:  I am a civil litigation attorney with experience representing HOAs, homeowners, businesses and others in real estate matters.
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I have a potential tenant who is willing to put up 3 months

Customer Question

I have a potential tenant who is willing to put up 3 months security deposit since she has a recent foreclosure, when running her credit report it shows she just filed a chapter 7 bankruptcy last month. SHould I rent to this person and if so what are the risks with the pending bankruptcy?
Submitted: 2 years ago.
Category: Real Estate Law
Expert:  CalAttorney2 replied 2 years ago.
Keep in mind, this is a "Q&A" forum, so I cannot give you a formal legal opinion as to whether or not you should rent to a specific tenant.There are benefits to renting to a tenant that has just finished a bankruptcy - they no longer have any other creditors, so they are actually much better credit risks than they were before (when they had a lot of creditors and the same income that they have now).If they have provided you with a sufficient security deposit, and no problems in the past (no significant damage claims or reports from past landlords) they are probably fine as tenants - but it is definitely worth doing a little more detailed background check with their rental history (assuming they have any recently around their home ownership that ended in the foreclosure).
Customer: replied 2 years ago.

Well I think you misunderstand the question, she just filed as of May 27, 2015 it has not been discharged as of yet so I am concerned that if she rents and even if she provides the extra security deposit that she wont have to pay until the court makes a finding, and I will be prohibited from evicting while the bankruptcy stay is in place, so am I in danger of letting her in and then waiting months for a rent check or the court requiring me to surrend some of her 3 month security deposit?

Expert:  CalAttorney2 replied 2 years ago.
There is a break at the point that she files.
Her assets that she owned "pre-filing" belong to the bankruptcy estate (this is for a Chapt. 7 "liquidation" bankruptcy), the trustee can make a finding of "no assets" (meaning no non-exempt assets) and no distributions and she will have her discharge in 2-3 months).
The debts that she takes on post-filing are likewise dealt with with post-discharge assets and are not part of the filing.
Obviously this is a higher risk tenant than a post-discharge debtor, and you still have the discretion to lease to this person or not (I cannot make this decision for you), but it does not mean they are going to necessarily default on the lease.
You can ask for a co-signer (this is a common way to help with high risk tenants, and very effective at mitigating risk).

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