Can you rent a house or apartment if you go bankrupt or file a proposal?
Many of our clients worry that a bankruptcy or consumer proposal listed on their credit report may make it more difficult to rent a place. It is true that if a landlord has a choice between someone with perfect credit and lots of money in the bank, and someone with a less than perfect credit report, the person with perfect credit has an advantage.
However, billionaires don’t rent an apartment, so even if your credit is not perfect, you are competing against other people with less than perfect credit.
On our Debt Free in 30 podcast Doug Hoyes interviewed a property manager (you can listen to Podcast #187 – Advice for Tenants Renting a Property here), and she gave the following advice to increase your chances that you will win the competition to rent a place, even if you are bankrupt or in a consumer proposal:
Finding a Place
First, avoid houses or condos that are listed for both rent and sale on MLS or Realtor.ca; if you rent a place that the owner is trying to sell, it’s likely you will end up moving in a year. It’s better to temper your expectations and look for an older place, that has less risk of being sold away within a year. Another helpful tip is to be direct – simply ask the landlord how long they’ve owned the property.
To help you find an affordable unit, avoid looking at websites like Realtor.ca and PadMapper since they’re full of short-term and part-time rentals, like for Airbnb. These cause prices to be skewed upward and give renters a false sense of reality. Better options are:
The most important piece of advice: Set your budget, look for a realistic price that you can afford, and stick to it.
How can you improve your chances of getting the place you want?
According to section 10 of the Ontario Residential Tenancies Act:
In selecting prospective tenants, landlords may use, in the manner prescribed in the regulations made under the Human Rights Code, income information, credit checks, credit references, rental history, guarantees, or other similar business practices as prescribed in those regulations.
Since the law allows a landlord to do a credit check, verify your income, and review your rental history, here is how you can increase your chances of being approved:
- Be prepared by creating a package: Get your most recent credit report from TransUnion or Equifax (you can get a copy for free without your credit score, or pay the $20 to get your credit score so the landlord doesn’t have to). Include a copy of your photo ID (passport or driver’s license), as well as, your proof of income (a recent paystub), and references. Treat the process like a job application. By being prepared, you’re already off to a good start.
- BONUS TIP: Your credit score may be different on TransUnion, or Equifax, or one of those free apps; correct errors on your credit report first, and then submit to the landlord whichever credit score is the highest!
- Provide positive references. If you have a previous landlord that will give you a positive reference, include that in your information package. If you don’t have a reference from a previous landlord, a reference letter from your employer may help distinguish you from the competition.
- Arrive on time for viewings and be polite: A good impression goes a long way.
- Be honest about your situation: If your potential landlord sees you have nothing to hide, it makes you much more reliable and trustworthy. A good credit score is one factor, but a landlord is most interested in your character, because that’s what determines whether or not you will be a good tenant (taking care of the place, being clean and quiet, and paying your rent on time).
- Find a guarantor or co-signer. This often is your parents or another family member. This works for the landlord, because the co-signer is fully liable for any missed payments or other costs. But beware: if there are any problems, the landlord can sue both you and your co-signer, so only get a co-signer if you are sure you can make all of the payments.
- Find a roommate with good credit. Like finding a co-signer, your roommate becomes fully liable for any missed payments, so both you and your roommate should understand the implications of having two names on the lease.
- Wait until your credit score improves. If you take steps to rebuild your credit, your credit score will improve, so in some cases the best option is stay in your current living situation until your credit score improves so you can get a place based on your credit rating, without the need to involve a guarantor.
A word of caution: your prospective landlord may ask for you to prepay for many months rent; don’t do it; it’s illegal. Section 106 of the Ontario Residential Tenancies Act says that the maximum you can pay as a security deposit is one month’s rent. So when you rent a place you may be required to pay first and last month’s rent (with the security deposit being last month’s rent), but you are not permitted to “pay six months in advance”.
Here’s the bottom line: with damaged credit it may be more difficult to rent a place, but if you follow the steps above you increase your chances of finding a place to rent. Remember: a landlord wants a good tenant, so if you can show that you are a good tenant, you increase your chances of finding a great place to live.