Labor market weakness, inflation and growing debt challenges are taking their toll on consumers’ financial health and pushing them to seek legal advice at near-historic rates, according to a new report from legal service provider LegalShield.
The report says that bankruptcy inquiries surged 17 percent in the third quarter of the year, continuing an upward trend that began in late 2021. This helped to push the Consumer Stress Legal Index up 4.4 percent between June and September, capping off seven consecutive months of increases and reaching its highest level since March 2020.
To compile its figures, LegalShield tracks roughly 150,000 monthly calls to lawyers, with levels of demand for various legal services used to create its index of consumer stress.
“We’re seeing families hit crisis mode heading into the holidays—especially around unsecured debt and rising housing costs,” LegalShield’s senior vice president of consumer analytics Matt Layton told Newsweek.
Why It Matters
Despite robust gross domestic product growth in the second quarter and early signs of an especially impressive corporate earnings season, there are concerns that the majority of Americans are missing out on the benefits of any economic expansion that may be occurring. Surveys charting consumer confidence continue to register declines, revealing widespread pessimism among households about their financial outlook and the economy as a whole.
What To Know
“The surge in bankruptcy-related inquiries reflects broader economic challenges squeezing American families,” the LegalShield report read. “Job losses, rising prices, and high borrowing costs are creating a perfect storm of financial pressure.”
While the official reading from the Labor Department on jobs growth in September has been delayed due to the ongoing government shutdown, private market data has pointed to another weak month for hiring in the U.S.
Inflation remains well above the Federal Reserve’s long-term 2 percent target—the headline annual rate edging up to 3 percent in September. A study by LegalShield published last month found that Americans are increasingly turning to alternative modes of financing like buy now, pay later (BNPL) loans for essential purchases amid these challenges, and that roughly half of users are missing payments.
What People Are Saying
Matt Layton, LegalShield senior vice president of consumer analytics, told Newsweek: “With the Consumer Stress Legal Index hitting its highest level since 2020, LegalShield’s data is signaling that financial pressure on American households is deepening just as the holiday season begins. The index, which tracks more than 150,000 monthly legal inquiries across the U.S., points to a worrying rise in bankruptcy, debt, and housing-related issues—early warning signs that consumer resilience may finally be wearing thin.”
LegalShield provider attorney Christopher Peoples, quoted in the report, said: “We’re seeing a spike in bankruptcy-related calls here in Kansas. I’ve talked to my legal colleagues in other states like Utah and Idaho and they’re saying the same thing. People are drowning in this economic state we’re in—so much to pay for with prices constantly increasing and credit cards with exorbitant interest rates, everyday Americans are running out of options. Bankruptcy is their last lifeline.”
What Happens Next
Looking ahead, Layton told Newsweek the figures suggest consumer spending will soften in the coming months, especially for nonessentials and holiday purchases. He added that, without borrowing costs dropping further and housing pressures easing, consumer stress will likely rise further before stabilizing.
Noting the historically strong correlation between inquiries and filings, he predicts a “significant spike in actual bankruptcy filings in the first quarter of next year.”
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