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What Is the Bankruptcy Means Test and Why Does It Matter?

July 3, 2019

If you wish to file for Chapter 7 bankruptcy in Oregon, you will first need to pass the means test. According to NerdWallet, the bankruptcy courts designed the means test to limit the number of debtors who could discharge their debts via Chapter 7 bankruptcy. Those who pass the means test qualify for Chapter 7, while those who do not — or those who wish to keep certain assets — can restructure their debts and pay them off through Chapter 13 bankruptcy.

The means test has two parts, both of which are designed to see if you have enough disposable income to pay off your debts. The first portion of the means test checks to see whether your household income falls below the state’s median. The test calculates any income earned within the past six months. It also takes into consideration any recent changes in your income status and makes adjustments accordingly. For instance, if you lost your job two months ago, the means test will factor in the loss of income. If you earned a raise, it will factor the additional earnings into the equation.

If your household income falls below the state’s median income, you pass the test. This means you qualify for Chapter 7. If, however, your income is above the state’s median and you still wish to apply for Chapter 7, you will need to move onto part two of the test.

The second part of the means test calculates the amount of disposable income you have left over at the end of each month. If you have enough disposable income left over to put toward your debt at the end of each month, you may have to file for Chapter 13.

The bankruptcy courts ask you to present documentation of “allowable expenses” accrued over the course of the past six months. “Allowable expenses” include items such as rent, clothing, groceries, car payments, medical expenses and daycare costs. What remains after the courts deduct these expenses from your monthly income is your “disposable income.”

If forced to go through the second part of the means test, be as thorough as possible. Omitting even just one or two expenses may result in your disqualification for Chapter 7.

This article is for informational purposes only. You should not view it as legal advice.