Discharging Parent PLUS Loan Through Bankruptcy
In general, student loans—including Parent PLUS loans—are not automatically discharged in bankruptcy. To have a Parent PLUS loan eliminated, you must initiate an additional legal process known as an adversary proceeding. This is basically a lawsuit filed within your bankruptcy case, requesting that the court discharge the loan on the basis of “undue hardship.”
Undue hardship is not a clearly defined legal standard. Bankruptcy courts evaluate this based on your current income, basic living expenses, and if your financial condition is expected to improve. Discharging a Parent PLUS loan is possible, but it remains rare and legally complex.
What Bankruptcy Can—and Cannot—Do in Tennessee
If you file for bankruptcy in Tennessee, it may provide temporary protection from collection efforts via automatic stay. This stay halts creditor actions, including those related to your Parent PLUS loan, while the bankruptcy case is being reviewed. This does not remove your obligation to repay the loan, but it can offer immediate relief. It also provides you time to assess your long-term financial plan.
A bankruptcy discharge eliminates certain types of unsecured debt such as credit cards, payday loans, and medical bills. However, unless you can demonstrate undue hardship through an adversary proceeding, your Parent PLUS loan is likely to remain intact after your case concludes.
Other Options Outside of Bankruptcy
If your current financial situation makes it difficult to meet your monthly Parent PLUS loan payments, you’re not alone. Bankruptcy may not be the ideal solution, but you can consider other available options.
One option is the Income-Contingent Repayment Plan (ICR). Although Parent PLUS loans are not directly eligible for ICR, they can be consolidated into a federal Direct Consolidation Loan, after which ICR becomes available. Under this plan, your monthly payments are tied to your income, family size, and overall financial situation. It may extend your repayment period to up to 25 years, but any remaining balance may be forgiven at the end of the term. Note that loan forgiveness may have tax implications.
Short-term financial relief may also be available through deferment or forbearance. These options allow you to pause or reduce payments for a limited time. However, interest usually continues to accrue during these periods, so it is important to understand the long-term cost.
What If You Have an Adverse Credit History?
Applicants with an adverse credit history often face barriers when initially applying for a Parent PLUS loan. In such cases, you may be required to obtain an endorser or successfully appeal the credit denial.
However, once the loan has been disbursed, your credit history is no longer a factor in determining if it can be discharged in bankruptcy. Instead, the court will focus on your current and projected financial circumstances to determine if undue hardship exists.
Bankruptcy Laws and Federal Student Loans
Federal bankruptcy laws are designed to prevent the abuse of financial protections by limiting the discharge of federal student loans. The underlying assumption is that student loans represent an investment in long-term earning potential. And as such, they should be repaid except in extreme circumstances.
This does not mean relief is entirely out of reach. With strong legal representation and documentation of real financial distress, some borrowers have successfully discharged Parent PLUS loans through bankruptcy. Such outcomes though remain the exception rather than the rule.
