Yes. A Parent PLUS loan is a federal student loan, and a parent who took one out can ask the bankruptcy court to discharge it the same way a student borrower can: by showing that repaying it would cause an "undue hardship." If the Department of Education holds the loan, the parent can use the Justice Department's attestation process.
Whose loan is it?
A Parent PLUS loan is made to the parent, not the student. The parent signed the promissory note, and the parent is responsible for repaying it, even though the education was the child's. The loan cannot be handed off to the child.
That matters in bankruptcy. Because the debt is yours, you are the one who files the bankruptcy case and asks the court to discharge the loan. Your child does not need to file anything.
The same test applies
The Bankruptcy Code treats Parent PLUS loans like other federal education loans. They are not wiped out by an ordinary bankruptcy discharge. A separate case inside your bankruptcy, called an adversary proceeding, asks the court to find that repaying the loan would be an undue hardship on you and your dependents.
Under the Justice Department's guidance, government attorneys ask a parent the same three questions they ask anyone:
- Can you afford to pay now? Your income is compared with your necessary expenses, using IRS expense standards for many categories.
- Is that likely to continue? A short rough patch is not enough on its own.
- Have you acted in good faith? The government looks at your efforts to earn income, manage expenses and deal with the loan.
Why many parents fit the guidance
Parents often borrow later in life. The guidance presumes your situation is unlikely to improve if, among other things, you are 65 or older, you have a disability or chronic injury that limits your earning ability, or the loan has been in repayment status for at least ten years.
For example, picture a 67-year-old living on Social Security and a small pension who borrowed for a child's college years ago. Age alone triggers one presumption. Whether the government supports a discharge still depends on how that income compares with necessary expenses, and on good faith.
What works a little differently for parents
- The form is written mostly for students. Some attestation questions ask about the degree you were pursuing. A parent's answers need care, because the schooling was someone else's.
- Household income counts. The guidance includes income from other household members. If an adult child lives with you and works, that income may be part of the math.
- Repayment history is judged fairly. Parent PLUS loans have had more limited repayment options than loans made to students. The government says it won't disqualify you just for missed payments if other evidence of good faith exists, or for not enrolling in an income-driven plan if you have a reasonable explanation.
- Endorsers. If someone endorsed your loan, tell us. Under the Bankruptcy Code, a discharge of your debt generally does not change anyone else's liability for it.
Check who holds the loan first
Older Parent PLUS loans made under the FFEL program may be held by a bank or guaranty agency instead of the Department of Education. Our post on how to check who holds your loans walks through it.
The honest limits
Not every parent qualifies. The government may support a full discharge, a partial discharge or neither, and the bankruptcy judge makes the final decision. It depends on your numbers and your history.
Talk to us
If a Parent PLUS loan is weighing on your retirement or your budget, the first conversation is free. Mr. Shapiro can review your loans and finances and tell you whether the attestation process is a realistic fit. Call 702-386-8600.