diff --git a/src/basic_memory/api/v2/routers/project_router.py b/src/basic_memory/api/v2/routers/project_router.py
index aa7e8240..5844c874 100644
--- a/src/basic_memory/api/v2/routers/project_router.py
+++ b/src/basic_memory/api/v2/routers/project_router.py
@@ -559,12 +559,10 @@ async def set_default_project_by_id(
     logger.info(f"API v2 request: set_default_project_by_id for project_id={project_id}")
 
     try:
-        # Get the old default project from database
+        # Get the old default project from database. It may be absent during
+        # bootstrap/recovery (no default row yet); that is a valid state, not an
+        # error, so we only echo it back when one exists.
         default_project = await project_repository.get_default_project()
-        if not default_project:
-            raise HTTPException(  # pragma: no cover
-                status_code=404, detail="No default project is currently set"
-            )
 
         # Get the new default project by external_id
         new_default_project = await project_repository.get_by_external_id(project_id)
@@ -576,17 +574,27 @@ async def set_default_project_by_id(
         # Set as default using project name (service layer still uses names internally)
         await project_service.set_default_project(new_default_project.name)
 
-        return ProjectStatusResponse(
-            message=f"Project '{new_default_project.name}' set as default successfully",
-            status="success",
-            default=True,
-            old_project=ProjectItem(
+        # Trigger: a previous default existed
+        # Why: ProjectStatusResponse.old_project is Optional; the no-default
+        #   bootstrap case must succeed with old_project=None
+        # Outcome: response echoes the prior default only when there was one
+        old_project = (
+            ProjectItem(
                 id=default_project.id,
                 external_id=default_project.external_id,
                 name=default_project.name,
                 path=default_project.path,
                 is_default=False,
-            ),
+            )
+            if default_project
+            else None
+        )
+
+        return ProjectStatusResponse(
+            message=f"Project '{new_default_project.name}' set as default successfully",
+            status="success",
+            default=True,
+            old_project=old_project,
             new_project=ProjectItem(
                 id=new_default_project.id,
                 external_id=new_default_project.external_id,
diff --git a/tests/api/v2/test_project_router.py b/tests/api/v2/test_project_router.py
index 27363648..ceccebf4 100644
--- a/tests/api/v2/test_project_router.py
+++ b/tests/api/v2/test_project_router.py
@@ -137,6 +137,37 @@ async def test_set_default_project_by_id(
     assert old_project.is_default is False
 
 
+@pytest.mark.asyncio
+async def test_set_default_project_when_none_is_set(
+    client: AsyncClient, test_project: Project, v2_projects_url, project_repository
+):
+    """Regression for #975: setting a default must succeed when none is set.
+
+    This is the bootstrap/recovery case: `bm project default <name>` is exactly
+    the command reached for when no default exists, so the endpoint must not 404.
+    """
+    # Clear any existing default so no row has is_default set.
+    await project_repository.update(test_project.id, {"is_default": None})
+    assert await project_repository.get_default_project() is None
+
+    response = await client.put(f"{v2_projects_url}/{test_project.external_id}/default")
+
+    assert response.status_code == 200
+    status_response = ProjectStatusResponse.model_validate(response.json())
+    assert status_response.status == "success"
+    assert status_response.default is True
+    # No previous default existed, so old_project must be None.
+    assert status_response.old_project is None
+    new_project = _project_item(status_response.new_project)
+    assert new_project.external_id == test_project.external_id
+    assert new_project.is_default is True
+
+    # A follow-up read-back must now return the newly set default.
+    default_project = await project_repository.get_default_project()
+    assert default_project is not None
+    assert default_project.external_id == test_project.external_id
+
+
 @pytest.mark.asyncio
 async def test_set_default_project_not_found(client: AsyncClient, v2_projects_url):
     """Test setting a non-existent project as default returns 404."""