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If your debts have piled up, filing for bankruptcy might be your best option. Two of the most common types of personal bankruptcy are Chapter 7 and Chapter 13. To determine which you qualify for, you need to take the Arkansas means test.

In Chapter 7 bankruptcy, your assets (minus your home, car and some private possessions) are liquidated to pay off your creditors. In Chapter 13 bankruptcy, you are put on a payment schedule – usually three to five years – to pay back your debts. The key to determining which applies to you is the means test measuring your income against the median income in Arkansas.

How to determine your median income

To determine your average yearly income, add up what you make each month. Look at what you earned over the last six months and find the average. Multiply that average by 12. You should include income from:

  • Wages, salaries and tips
  • Bonuses and commissions
  • Income from a business or farm
  • Interest, dividends or royalties
  • Rental property
  • Child or spousal support
  • Unemployment compensation, worker’s compensation or disability insurance
  • Pension or retirement funds

You should exclude payments from tax refunds, Social Security, Social Security disability, Supplemental Security, and Temporary Assistance for Needy Families.

The means test does not apply to any disabled veteran who incurred more than half the debt while on active duty.

If your average yearly income is lower than the state average, then you qualify for Chapter 7 bankruptcy protection.

Above or below the Arkansas median income

Here are the yearly state income averages in Arkansas for those filing on or after November 1, 2018:

  • 1-member household: $42,546
  • 2-member household: $52,621
  • 3-member household: $58,931
  • 4-member household: $66,712

If your income is above the state average, you may be able recalculate the total subtracting monthly expenses for such items as income taxes, union dues, insurance, house or car, child care, health care or care for an elderly, disabled or chronically ill person.

If your income is still above state average, a judge may determine you should pursue Chapter 13 protection.

However, income should not be the sole determining factor into whether you file for Chapter 7 or Chapter 13 bankruptcy. Both have positive aspects and drawbacks. Get the best advice available before making any decision.