If you are struggling with debt and wondering whether bankruptcy is even an option for you, the means test is the place to start. It sounds more intimidating than it is. For most Oregon families dealing with medical bills, credit card debt or mounting personal loans, Chapter 7 is more accessible than you might think.
What the means test actually is
The means test is an income check that compares your household’s average monthly income over the six calendar months before filing to Oregon’s median for your household size. If your income falls at or below that median, you qualify for Chapter 7 without any further calculation.
The test counts gross income from everyone in the household, including a non-filing spouse. Not all income counts, though. Social Security and qualifying VA disability payments do not factor into the calculation, which matters for seniors and those on fixed incomes. Private disability benefits generally do count.
How Oregon’s income thresholds work
The U.S. Trustee Program updates Oregon’s median income figures twice a year, in April and November, and the current figures are the only numbers that matter on the day you file.
Thresholds increase with household size, so a family of four has a higher limit than a single-person household. If you are a single parent with two children, for example, your income is compared to the median for a three-person household, not the state average. Household size can make a significant difference in whether you qualify.
What happens if you are over the median
Being over the median does not mean you are out of options. It means you move to the second part of the test, where allowable expenses, including housing, utilities, food, transportation, childcare and medical costs, are subtracted from your income. Many families who appear over the limit still qualify once those deductions are applied.
If you still have too much disposable income after deductions, Chapter 13 may be worth exploring. It allows you to repay a portion of your debt over three to five years while keeping your assets.
What Chapter 7 can and cannot erase
Chapter 7 can discharge most unsecured debt, including credit card balances, medical bills, personal loans and utility arrears. For families overwhelmed by debt, this can mean a genuine fresh start.
It cannot discharge certain debts, including most student loans, recent tax debt, child support and alimony. Secured debts like a mortgage or car loan are also not eliminated unless you choose to surrender the property.
If you are unsure whether Chapter 7 is right for your situation, speaking with a bankruptcy attorney is the best next step. The means test has more nuance than it appears, and an experienced lawyer can help you understand exactly where you stand.
