sgideons

This is a terrible idea I've been turning over in my head for months now, and I decided the best thing to do would be to write it down, turn it over to the community and take all the well-earned criticism.

Most (all?) states have a homestead exemption in their bankruptcy laws such that you aren't required to sell your primary residence in order to pay unsecured creditors.

So, it seems to me technically feasible to get a mortgage (at almost any interest rate, since you won't be paying more than a year or two of interest), then over the course of many months of manufactured spend run up your credit card balances and using the manufactured spend to make early mortgage payments (you'd need a mortgage that doesn't penalize these) instead of paying off the credit cards. You'd only make the minimum payments on your credit cards, so you'd be paying interest on those balances.

Then, after fully paying off your mortgage (or paying it off up to your state's homestead exemption, if applicable), declare bankruptcy and have the credit card debt discharged.

You'll then have converted debt into wealth. You could even sell the house and collect the cash once you've exited bankruptcy.

Obviously this is just a version of "manufacture spend and flee the country," but this assumes you'd like to remain in the country within reach of US courts.

Obvious pitfalls:

1. Ruining your credit for years
2. Fraud charges since you didn't intend to repay the credit card debt?
3. Wage garnishment in bankruptcy court?
4. Homes are expensive to own and maintain, property taxes, etc.

So, while I would never do this – and no one else should either! – it does seem technically feasible to me. I know I can count on the community to explain why it's not.

uneeq

1. Ruining your credit for years

Pretty sure this will guarantee that you never get approved for another loan again in your life so good luck living on cash only.

explorer84

I think the creditors would be able to show the bankruptcy is fraudulent and can petition the bankruptcy court to not discharge the loans - so, you'd have an outstanding judgment anyways....not a bankruptcy lawyer, but I know the trustees are pretty good and will see through it.

kcblakely

No it won't. The timelines on personal bankruptcy and debt discharges are well known.

There's nothing structural wrong with OP's proposal, but it's just not really that feasible. The only people who have the level of credit required to do something like this are the same people who are incentivized against it, ie, lots of property, standing in the community, that kinda stuff.

Honestly; the whole "buy a house" thing is prolly just too hard. If OP's tactic is attractive to you, there's easier ways....

itchyfeet123

If you only pay the minimum payment on the CC you won't have any available credit in month two to do MS.

CrediPig

One could use MS to make monthly mortgage payments... as long as MS continues to be possible in the future.

andyandy

On a less grand and/or larcenous scale, how about the idea of buying a smaller house and paying for it with the cashed out "float" from your MS activities. Many of us have combined CLs that are well over 6 figures, so its technically feasible. At least until some factor of the game changed.

Still a really terrible idea, but I thought it was what the OP might be suggesting based on the thread title.

Andyandy

AdamAlias

It had occurred to me that an early-20s college graduate with a high amount of student loans and a good credit rating might try something similar, transforming non-dischargeable student loan debt into unsecured consumer debt, and then declaring bankruptcy, which would be off their credit history by the time they turn 30.

I would assume it would count as fraud, though, but IANAL, so I honestly have no idea.

In terms of why it's a terrible idea, it's basically stealing.

medellinfein

Let's theoretically examine this, which you should NOT do since it is stealing. I think it would be pretty obvious that you are using CC to buy cash equivalents which you are then using to pay mortgage/student debt. The only way to get around this would be to mask it by money laundering i.e. funneling through several accounts so as to make it difficult to trace that the money came from cash equivalents originally...

Elmatador

It is not a good Idea for a house. But if you got like 50K+ in students Loans. I'd would definitely MS to pay them off and then file bankruptcy.. fvock it

sgideons

I actually DO more or less do this: I'm floating all this cash every month, why am I paying 6.8% on my unsubsidized Staffords? It's the Mango/Netspend/Momentum/PP arbitrage in reverse.

Of course I pay off my credit cards every month, but my point is if something happened that made me declare bankruptcy, I'll have converted my student loans into unprotected debt.

MaineCoon

not a good idea.

"They" will get you.

ericdabbs

Why would anyone try to do this? That is just idiotic. The best you can do is pay your mortgage payments using BB or BB checks. You can't put a down payment using credit card and nor should even think about doing that.

nuclfusion

It's an interesting concept, especially given those with student loans in the 6 figure range. I'd consider it if I had enough CL with Citi or Barclays or some other bank I could care less about. What would Chase do if you were to file for bankruptcy with their cards in good standing? Would they shut you down? It's an interesting concept but too shady for my blood.

Wise-Broccoli8301

you're better off buying bitcoins for MS...