Your credit is tanked and debt feels endless. Should you grind it out and fix your credit, or wipe it with bankruptcy? At Simply Decided we use the 2-year income test. If you can pay off all unsecured debt in under 2 years, fix it. If it would take 5+ years, bankruptcy math wins. Here’s how we decide.
Disclaimer: This is general education, not legal advice. Bankruptcy laws vary by state. Talk to a non-profit credit counselor or attorney before deciding.
Fix vs Bankruptcy: The 2-Year Rule
Fix your credit if: Your total unsecured debt (cards, medical, personal loans) is less than 50% of one year of take-home pay. Example: You make $40k take-home, debt is under $20k. You can fix it in 2 years with a debt snowball.
Consider bankruptcy info if: Your unsecured debt is MORE than 100% of one year take-home, you’ve been 90+ days late for 6+ months, and you can’t cover minimums even on a bare-bones 50/30/20 budget. That is 5+ years of payments with no end.
Quick Math: Debt-to-Income Test
| Situation | Math | Verdict |
| $15k debt, $40k income | 15k / 40k = 37% | Fix it — under 50% |
| $35k debt, $40k income | 35k / 40k = 87% | Gray zone — get counseling |
| $55k debt, $40k income | 55k / 40k = 137% | Look at bankruptcy options |
The 60-Second Fix or Bankruptcy Tool
Educational only — not legal advice. Based on YOUR debt vs income % and late status you enter. Simplified test only. Bankruptcy laws vary by state, exemptions, income, chapter type. Ignores secured debt, student loans, recent purchases, lawsuits. Talk to non-profit credit counselor at NFCC.org and attorney before deciding.
When Fixing Wins
- Debt under 50% of one year take-home pay
- You are still current or only 30 days late
- You can pay more than minimums if you cut wants to 20%
- Debt is mostly 1-2 cards, not 5+ accounts in collections
When to Get Bankruptcy Information
- Debt over 100% of one year take-home pay
- 90+ days late for 6+ months, even on minimums
- Using one card to pay another
- It would take 5+ years on a bare-bones budget
What to do next: 1) Get free counseling at NFCC.org, 2) Pull free credit reports at AnnualCreditReport.com, 3) List all debts smallest to largest for snowball math.
Related: Fix budget or start over? | Keep or cancel subscription?
Disclaimer: This is general education, not legal advice. Bankruptcy laws vary by state. Talk to a non-profit credit counselor or attorney before deciding.
Frequently Asked Questions
What is the 2-year rule?
Fix your credit if your unsecured debt is less than 50% of one year of take-home pay — you can clear it in 2 years with a debt snowball. If it would take 5+ years, bankruptcy math wins.
When should I get bankruptcy information?
If your unsecured debt is more than 100% of one year take-home, you’ve been 90+ days late for 6+ months, and you can’t cover minimums even on a bare-bones budget.
What if I’m in the gray zone?
If your debt is 50-100% of take-home pay, get free counseling at NFCC.org first — they can help you decide between a payoff plan and bankruptcy.
When should I ignore this rule and talk to a professional?
This is general education, not legal advice — bankruptcy laws vary by state, so talk to a non-profit credit counselor or attorney before deciding.
Not quite your situation?
Try one of these decisions instead: