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Comment by dkjaudyeqooe | Hacker News Reader

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.

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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.

> 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.

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.

aka Strategic default. There was a lot of that in states where the lender doesn't have recourse beyond reclaiming the house.

AKA 'jingle mail'

> 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).

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

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.

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

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