What is a bankruptcy?
In short, a bankruptcy is a legal proceeding involving a person or business that is unable to repay their outstanding debts.
The most common types of bankruptcies we encounter are Chapter 7 and Chapter 13:
- Chapter 7 bankruptcy is a liquidation proceeding available to consumers and businesses. Those assets of a debtor that are not exempt from creditors are collected and liquidated (reduced to money), and the proceeds are distributed to creditors. A consumer debtor receives a complete discharge from debt under Chapter 7, except for certain debts that are prohibited from discharge by the Bankruptcy Code.
- Chapter 13 bankruptcy, often called a wage-earner bankruptcy, is used primarily by individual consumers to reorganize their financial affairs under a repayment plan that must be completed within three or five years. To be eligible for Chapter 13 relief, a consumer must have regular income and may not have more than a certain amount of debt, as set forth in the Bankruptcy Code.
You can learn more about the different chapters of Bankruptcy here.
How do bankruptcies impact renters?
- Bankruptcies remain on credit reports for 10 years.
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<img src="https://s3-us-west-2.amazonaws.com/secure.notion-static.com/43957ad6-0457-44d9-b0c7-ae1655b211fb/Green_Logo2.png" alt="https://s3-us-west-2.amazonaws.com/secure.notion-static.com/43957ad6-0457-44d9-b0c7-ae1655b211fb/Green_Logo2.png" width="40px" /> Lighthouse: Tips For Bankruptcies
- Know how long ago your bankruptcy occurred
- Know if it has been discharged
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What are the requirements for apartments?
Each apartment complex has its own criteria for accepting new tenants with a bankruptcy:
- Most require the bankruptcy to be discharged (more on this below).
- Some require 1-5 years since discharge, as apartments may be concerned about the lease being added into the bankruptcy.
What is a discharge in bankruptcy?
A bankruptcy discharge releases the debtor from personal liability for certain specified types of debts.
- In other words, the debtor is no longer legally required to pay any debts that are discharged. The discharge is a permanent order prohibiting the creditors of the debtor from taking any form of collection action on discharged debts, including legal action and communications with the debtor, such as telephone calls, letters, and personal contacts.
Apartments will charge you a larger deposit when you have a bankruptcy. Be prepared to pay up to 1-2 month’s rent as a deposit. This lets apartments adjust for the higher risk in accepting tenants with bankruptcies in their history.
⚠️ Important: is especially important to know what is on your credit before you go and apply at an apartment. By knowing what is on your credit report. Lighthouse can help you more effectively by providing apartments that have worked with your situation.