When you file for Chapter 7 or Chapter 13 bankruptcy, you must compare your family income to the median income in your state for the same household size. In Chapter 7, this is an important part of the means test. In Chapter 13, this is important in determining how long your repayment plan will last and also what expense figures you can use.
Here's how to compare your income to your state's median income.
(To learn about coming up with your family income figure, see "Current Monthly Income" for the Bankrutpcy Means Test.)
How to Compare Your Income to Your State's Median Income
The Census Bureau publishes annual family median income figures for all 50 states. To compare your current monthly income to the family median income for your state, you’ll need to multiply your current monthly income by 12 (or divide the annual family median income figure by 12).
Example. John and Marcia are married and have two young children. Their current monthly income is $5,400. Their annual income would be $64,800 ($5,400 multiplied by 12).
Once you’ve got your current monthly income and your family median income for the same time period (one month or one year), compare them to see whether your current monthly income is more or less than the median.
Finding Your State's Median Income
You can find the most recent family median income at the website of the U.S. Trustee at www.justice.gov/ust (select "Bankruptcy Reform" and then “Means Testing Information”). The figures that apply to bankruptcy cases filed on or after November 1, 2011 are here.
Example. You can see from the chart that if John and Marcia lived in Alaska, their annual income would be less than Alaska's median income for a family of four ($88,003).
How Many People Are in Your Family?
To find out who is included in your household size for purposes of the means test, see Household Size and the Chapter 7 Means Test.
For Larger Families
Although the U.S. Census Bureau generates median figures for families that have up to seven members, Congress does not want you to use these figures if you have a larger family. The Census figures are to be used for families that have up to four members. If there are more than four members of your family, you must add a set amount per additional person to the four-member median income figure for your state. (Currently, this amount is $7,500.)
State Median Income Figures Change Frequently
The figures in the Median Family Income chart change about every 18 months, so be sure you are using the most recent chart. Until 2010, you could pretty much rely on the figures going up slightly; however, the last several times the figures were updated, the median income decreased in many states.
To learn more about the means test, see the articles in The Means Test and Other Chapter 7 Eligibility Issues.