4 ms·

Back in the early '10s I was reading a report from a guy who had stellar credit and the card limits to go with them. He ran up about $100,000 of debt on his car

Back in the early '10s I was reading a report from a guy who had stellar credit and the card limits to go with them. He ran up about $100,000 of debt on his cards on purpose and stopped making payments. He then approached his bank to settle the debt and negotiated a 60% discount. The account was marked "paid by customer" so it never appeared on his on his credit report as a default. He did get dinged for missing payments though, but was $60,000 richer.

joezydeco 3y ago
Doesn't the IRS consider settled debt as income? Did he have to report that?
- jjoonathan 3y ago
  Yes, but "defaulting on $100k as an income strategy" is a tier above the usual tax avoidance schemes in terms of risk, so I suspect he availed himself of those too and wound up paying very little tax on the $60k.
vikingerik 3y ago
I have a family member who did something similar - perfect credit and defaulted on purpose. On a rental property, he was underwater on the mortgage at the time of the 2008 crash, so he simply stopped paying and let the bank foreclose and came out ahead that way. Trashed his credit rating but he never had any need for it, he had enough to buy his own house and car outright.
- devnullbrain 3y ago
  AKA 'jingle mail'
- LorenPechtel 3y ago
  aka Strategic default. There was a lot of that in states where the lender doesn't have recourse beyond reclaiming the house.
- Sohcahtoa82 3y ago
  > On a rental property, he was underwater on the mortgage at the time of the 2008 crash What I don't understand is why people worried so much about being underwater. As long as you kept making payments, couldn't you ride it out and still own the house as the market recovers? > Trashed his credit rating but he never had any need for it, he had enough to buy his own house and car outright. This feels like it should be considered some kind of fraud.
  - deleted 3y ago
    [deleted]
  - vikingerik 3y ago
    The rest of the story in this case was that the tenant had also stopped paying, so it was easier to just let the bank deal with the eviction. As for why worry about being underwater - it's because you don't know the time frame of the recovery; the appreciation might have lagged behind the mortgage interest for the life of the loan, as far as anyone could see in the depth of the crash in 2008.
lr4444lr 3y ago
If he had just paid the minimum $25 or whatever, he could've avoided even missed payments.
FireBeyond 3y ago
> The account was marked "paid by customer" This is a lot harder to do these days. Not impossible, but definitely harder. The CRA contracts disallow marking an account as paid that was not paid in full (more commonly, people try to negotiate 'pay for delete' to remove derogatory histories).

joezydeco 3y ago

Doesn't the IRS consider settled debt as income? Did he have to report that?

jjoonathan 3y ago
Yes, but "defaulting on $100k as an income strategy" is a tier above the usual tax avoidance schemes in terms of risk, so I suspect he availed himself of those too and wound up paying very little tax on the $60k.

vikingerik 3y ago

I have a family member who did something similar - perfect credit and defaulted on purpose. On a rental property, he was underwater on the mortgage at the time of the 2008 crash, so he simply stopped paying and let the bank foreclose and came out ahead that way. Trashed his credit rating but he never had any need for it, he had enough to buy his own house and car outright.

devnullbrain 3y ago
AKA 'jingle mail'
LorenPechtel 3y ago
aka Strategic default. There was a lot of that in states where the lender doesn't have recourse beyond reclaiming the house.
Sohcahtoa82 3y ago
> On a rental property, he was underwater on the mortgage at the time of the 2008 crash What I don't understand is why people worried so much about being underwater. As long as you kept making payments, couldn't you ride it out and still own the house as the market recovers? > Trashed his credit rating but he never had any need for it, he had enough to buy his own house and car outright. This feels like it should be considered some kind of fraud.
- deleted 3y ago
  [deleted]
- vikingerik 3y ago
  The rest of the story in this case was that the tenant had also stopped paying, so it was easier to just let the bank deal with the eviction. As for why worry about being underwater - it's because you don't know the time frame of the recovery; the appreciation might have lagged behind the mortgage interest for the life of the loan, as far as anyone could see in the depth of the crash in 2008.

lr4444lr 3y ago

If he had just paid the minimum $25 or whatever, he could've avoided even missed payments.

FireBeyond 3y ago

> The account was marked "paid by customer" This is a lot harder to do these days. Not impossible, but definitely harder. The CRA contracts disallow marking an account as paid that was not paid in full (more commonly, people try to negotiate 'pay for delete' to remove derogatory histories).