Can Parent Plus Loans Be Discharged in Bankruptcy- A Comprehensive Guide
Can Parent Plus Loans Be Included in Bankruptcy?
Bankruptcy is a complex legal process that provides debtors with a fresh start. However, not all types of debt are eligible for discharge in bankruptcy. One common question among borrowers is whether Parent Plus Loans, a federal student loan program for parents, can be included in bankruptcy. This article explores this topic and provides an overview of the rules and considerations involved.
Understanding Parent Plus Loans
Parent Plus Loans are federal loans that parents can take out to help pay for their children’s college education. These loans are credit-based, meaning that borrowers must pass a credit check to qualify. Parent Plus Loans have a fixed interest rate and can be used to cover tuition, fees, room and board, and other education-related expenses.
Can Parent Plus Loans Be Included in Bankruptcy?
Yes, Parent Plus Loans can be included in bankruptcy, but there are certain requirements and limitations. To discharge Parent Plus Loans in bankruptcy, the borrower must meet the following criteria:
- Meeting the Chapter 7 Eligibility: Borrowers must qualify for Chapter 7 bankruptcy, which is designed for individuals with limited assets and income. They must pass the means test, which compares their income to the state median income.
- Completing an Adversary Proceeding: If the bankruptcy trustee objects to the discharge of the Parent Plus Loans, the borrower must file an adversary proceeding to prove that the loans are eligible for discharge.
- Meeting the “Undue Hardship” Standard: Borrowers must demonstrate that repaying the Parent Plus Loans would cause them undue hardship. This standard is subjective and varies by court, but it generally requires showing that the borrower cannot maintain a minimal standard of living while repaying the loans.
Considerations for Including Parent Plus Loans in Bankruptcy
While it is possible to include Parent Plus Loans in bankruptcy, there are several factors to consider:
- Chapter 13 Bankruptcy: Chapter 13 bankruptcy may not be an option for discharging Parent Plus Loans, as the focus is on restructuring debt rather than eliminating it.
- Co-signers and Endorsers: If someone co-signed or endorsed the Parent Plus Loans, they may still be responsible for the debt, even if the borrower’s bankruptcy discharge eliminates the borrower’s liability.
- Impact on Financial Aid: Including Parent Plus Loans in bankruptcy may affect the borrower’s eligibility for future financial aid, as some aid programs consider bankruptcy when determining eligibility.
Seeking Legal Advice
Deciding whether to include Parent Plus Loans in bankruptcy is a significant decision that requires careful consideration. It is crucial to consult with a bankruptcy attorney who can provide personalized advice based on the borrower’s specific situation. An attorney can help determine the best course of action and guide the borrower through the bankruptcy process.
In conclusion, while Parent Plus Loans can be included in bankruptcy, it is not an automatic discharge. Borrowers must meet specific criteria and may face challenges along the way. Seeking legal advice is essential to navigate the complexities of bankruptcy and make informed decisions regarding student loan debt.
