When exploring what happens to Parent PLUS loans when a parent files for US bankruptcy, the most critical rule is that the debt legally belongs to the parent, not the student. To completely discharge this debt, the parent must file an Adversary Proceeding in federal court (involving a standard $350 filing fee) and prove that repaying the loan causes them a severe “undue hardship.” A standard Chapter 7 filing alone will not automatically erase this specific educational liability.
Helping your child achieve their dream of a college education is a deeply honorable goal, but the resulting financial burden can sometimes push families to the breaking point. If you are struggling to stay afloat and wondering what happens to Parent PLUS loans when a parent files for US bankruptcy, it is essential to understand how the federal government views this specific type of debt. 😞 Unlike regular student loans taken out by an 18-year-old, Parent PLUS loans place the entire legal liability squarely on your shoulders.
Even if you made a private verbal agreement that your child would make the monthly payments after graduation, the Department of Education only recognizes you as the borrower. Because this involves suing a federal agency to wipe out the debt, the process is far more complex than erasing old credit card balances. 📍 We highly recommend browsing our directory to find a skilled local bankruptcy attorney who has experience dealing with federal courts, such as the Northern District of Illinois or the Central District of California, to guide you through this highly specialized litigation.
Step-by-Step Process in the USA
Because bankruptcy is governed exclusively by federal law, the steps required to challenge your Parent PLUS loans are identical across the country. Whether you reside in Houston (Harris County), Miami, or Seattle, your local federal bankruptcy court will follow these general procedures. 📝 It is important to realize that simply filing your initial petition is only the beginning of the battle.
Step 1: Filing the Underlying Bankruptcy Petition
Before you can address the educational debt, you must first file a standard Chapter 7 or Chapter 13 bankruptcy case. 📂 The moment this petition is filed, an automatic federal injunction goes into effect, which legally stops the government from garnishing your wages or demanding monthly payments while the court reviews your overall financial situation.
Step 2: Initiating the Adversary Proceeding
To specifically target the Parent PLUS loan, you must act as a plaintiff and file a separate federal lawsuit against the Department of Education, who will act as the defendant. ⚖️ This lawsuit is called an Adversary Proceeding, and it is the only legal mechanism available to formally ask a federal judge to declare that your educational debt is dischargeable under the law.
Step 3: Proving the Parent’s Undue Hardship
Here is where many people get confused: the court evaluates your financial hardship, not your child’s. 🔍 Even if your child is unemployed, the judge will only look at your income, your retirement needs, and your basic living expenses. You will typically complete a 15-page Department of Justice (DOJ) Attestation form to document your age, medical conditions, and standard IRS-approved living costs.
Step 4: Awaiting the Government’s Review
Once your attorney submits the Attestation form, DOJ lawyers will review your financial reality. 💻 They will assess if you are over the age of 65, if you have a permanent medical disability, or if your income will remain hopelessly low for the remainder of the loan’s repayment period.
Step 5: Reaching a Settlement or Trial
If your attestation successfully proves that making payments would deprive you of a minimal standard of living, the government may offer a settlement (a stipulation) agreeing to wipe out the debt. 🤝 If the defendant refuses to settle, your lawyer will have to present your case at a formal trial before the federal bankruptcy judge, who makes the ultimate decision on your liability.
How Much Does it Cost in the US?
Attempting to discharge federal student debt requires extra legal steps that drastically increase the overall cost of a standard bankruptcy case. 💵 Understanding these fees upfront is crucial for older parents who are living on a fixed income or Social Security benefits.
- Initial Bankruptcy Filing Fees: You must first pay the standard federal court fee to open your main case, which is currently $338 for Chapter 7 and $313 for Chapter 13.
- Adversary Proceeding Fee: To file the separate lawsuit against the Department of Education, the court requires a mandatory $350 filing fee.
- Attorney Fees: Because negotiating with DOJ lawyers and preparing the complex attestation form takes dozens of hours, most bankruptcy lawyers charge between $3,000 and $6,000 to handle an Adversary Proceeding.
- Fee Waivers: If your household income is extremely low, you can formally petition the bankruptcy judge to waive both the $338 Chapter 7 fee and the $350 adversary filing fee.
How Long Does the Process Take?
When asking what happens to Parent PLUS loans when a parent files for US bankruptcy, it is vital to know that the timeline is much longer than a typical case. ⌚️ While a standard Chapter 7 wipes out your credit cards in about 90 to 120 days, an Adversary Proceeding for student loans typically takes 6 to 12 months to resolve.
If the DOJ agrees to a settlement early on based on your attestation form, you might wrap up the process in just a few months. 📅 However, if the government decides to fight your hardship claim and forces a formal trial in a busy federal district, the litigation could easily drag on for well over a year.
| Feature | Standard Student Loan | Parent PLUS Loan |
|---|---|---|
| Legal Borrower | The student | The parent |
| Whose Hardship is Tested? | The student’s financial situation | The parent’s financial situation |
| Can it be transferred? | Cannot be transferred to parents | Cannot be transferred to the student |
| Required Legal Action | Adversary Proceeding required | Adversary Proceeding required |
Frequently Asked Questions (FAQ)
Can I transfer the Parent PLUS loan to my child before filing?
No. The federal government does not allow you to transfer a Parent PLUS loan into the student’s name. The only way the student can take over the debt legally is by refinancing the loan through a private corporate lender, which changes the entire nature of the debt.
Does the statute of limitations apply to Parent PLUS loans?
No. Because Parent PLUS loans are federal debt, there is no statute of limitations. The Department of Education can legally pursue you for repayment for the rest of your life unless you secure a bankruptcy discharge or a disability discharge.
Will discharging my PLUS loan affect my alimony/spousal support?
No. Bankruptcy wipes out specific debts independently. Discharging your Parent PLUS loan will not erase or alter your ongoing legal obligations to pay alimony/spousal support or child custody related expenses, which remain strictly non-dischargeable.
Can the IRS intercept my tax refund for a defaulted Parent PLUS loan?
Yes. If you default on a federal Parent PLUS loan, the government can use the Treasury Offset Program to seize your IRS tax refunds and apply them to your loan balance. Filing for bankruptcy stops this offset while the case is active.
Can the EEOC help if my wages are garnished for Parent PLUS loans?
No. The EEOC (Equal Employment Opportunity Commission) specifically handles workplace discrimination. If the government is garnishing your wages for a defaulted federal loan, the EEOC has no jurisdiction. You must file for bankruptcy to legally halt the garnishment.
Can a defaulted Parent PLUS loan suspend my driver’s license at the DMV?
In the past, some US states permitted the DMV to suspend professional or driving licenses for federal student loan defaults. However, recent legislative changes in most states have banned this practice, allowing you to keep your license.
What happens if the judge denies my hardship claim?
If the bankruptcy judge rules that you do not meet the “undue hardship” standard, the Parent PLUS loan will survive the bankruptcy. You will remain legally responsible for the full balance and will need to explore federal income-driven repayment plans instead.
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