Median household income determines the types of bankruptcy a family can file for in the US. It’s the exact middle number of household incomes and isn’t affected by outliers. Median household income varies by location and can change over time.
In a legal sense, the median household income is a figure used to determine the types of bankruptcy a family can file for. In the United States, those above the median income must file for bankruptcy which includes a repayment plan if they fail what is called a means test. Anyone below the median household income can file for Chapter 7 bankruptcy, provided they meet other requirements.
It’s helpful to understand what a median is, when you see how it compares to median household income. Household income is the income earned by spouses or parents who reside together, and governments collect these numbers through various means. All information is distributed from lowest to highest, and the exact middle number is the median. Alternatively, if an even number of incomes are reported, the middle two numbers are added and then divided by two to arrive at a median.
Some people wonder why the government doesn’t estimate income by averaging or averaging the numbers, but the means tend to be problematic when the data has very high or very low numbers, called outliers. An average can be too high or too low depending on how the data is distributed, and this can paint an unfair portrait of what most people are actually earning. The median number isn’t affected by highs or lows – it’s just the exact average number.
It should also be understood that a government can make a distinction between an average household income and an average household income. Household income would include all wage earners, such as older children, grandparents who live in the home and work, and so on. Median household income is usually the sum of the two primary wage earners or one wage earner if a person is the breadwinner. In the context of bankruptcy this tends to make sense, because usually it would be only the spouses or only the breadwinner who would be responsible for most of the debts. What’s important to note is that people need to consider median household income when determining whether they meet the criteria for filing Chapter 7 or 13.
In the United States and other countries, median household income varies. May vary by city, state, country, or region. Another feature of this income is its ability to change. When a government conducts a new census or gathers information in other ways, it may determine that the median has increased or decreased. For bankruptcy in the United States, people need to use the most up-to-date information and this would also be true for anyone needing to base a legal decision on family income. It is equally important that government agencies often collect this information in a way that reflects the state of household economic affairs in a timely and fair manner.
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