In the legal sense, median family income is a figure used to determine the types of bankruptcy for which a family can file. In the US, those who have an income above the median must file for bankruptcy that includes a repayment plan if they don’t pass what is call a means test. Anyone below the median family income can file for Chapter 7 bankruptcy, provided they meet other requirements.
It’s useful to understand what a median is, when seeing how it relates to the median family income. The family income is income made by the spouses or parents residing together, and governments collect these numbers by various means. All of the information is spread out from lowest to highest and the exact middle number is the median. Alternately, if there is an even number of incomes reported, the two middle numbers are added and then divided by two to arrive at a median.
Some people wonder why the government doesn’t evaluate income by getting a mean or average of the numbers, but means tend to be problematic when data has very high or very low numbers, called outliers. A mean can be too high or too low depending on the distribution of the data, and that can give an unfair portrait of what most people are actually earning. The median number isn’t affected by highs or lows: it is just the exact middle number.
It should be further understood that a government can make a distinction between a median family income and a median household income. The household income would include all wage earners, such as older kids, grandparents who live in the home and work, and et cetera. Median family income is usually the sum of the two primary wage earners or one wage earner if a person is head of household. In the context of bankruptcy this tends to make sense, because it would usually be just the spouses or just the single head of household who was responsible for most debts. What’s important to note is that people need to look at median family income when they’re determining whether they meet criteria for filing Chapter 7 or 13.
Across the US and in other countries, the median family income varies. It can 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 others ways, they may determine the median has risen or fallen. For bankruptcy in the US, people have to use the most current information and this would also be true for anyone who needs to base a legal decision on the family income. It’s equally important for government agencies to collect this information often so it reflects the state of economic affairs for families in a fair and timely manner.