Cut/file flat. Centre punch and drill out to core size as stated above. You can try reverse thread drill bits, theory being that the heat and vibration will sometimes free the stud and it will come out with the reverse action, didn't work for me. Get a tap of the correct size and run it in. If the stud is that corroded then trying to collapse the remaining threads is unlikely to work.
If all else fails get a helicoil kit of the appropriate size and pitch. This will allow you to fit a stud of the correct size instead of going up a size and all the hassle that will cause in later maintenance.
It's a pain, but not a disaster.
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