Which type of bankruptcy you qualify for depends, in part, on whether your annual income is more or less than your state’s median income. Before looking at numbers and formulas, however, you should be familiar with the two main types of personal bankruptcy:
Chapter 7 bankruptcy lets you to eliminate most unsecured debts in a matter of months in return for giving up all property that is not exempt. (Unsecured debts are debts—like credit card charges or medical bills—that aren’t backed up by specific items of property as collateral.)
Chapter 13 bankruptcy requires you to repay a portion of your debts over three to five years. During that time, you must live within a strict budget that is monitored closely by a bankruptcy court trustee. If you don’t make the required monthly payments, the Chapter 13 bankruptcy fails and you still owe your debts—unless you are able to convert to a Chapter 7 bankruptcy.
A mathematical formula—called the means test—determines which type of bankruptcy you qualify for. The means test considers:
- how your monthly income compares to your state's median income
- the amount and types of your debts, and
- other aspects of your financial situation.
For more details, and to find median income amount that applies to you, select your state from the list on this page.
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The means test initially looks to see if your household income is above or below median for a household your size in your state.
You can't skip the means test, but it may be very quick, if your income is below the median income for your state.