Consumers are facing a number of financial and economic challenges that may coalesce in a rise in bankruptcy filings during the summer months.
The financial strain on American households is becoming increasingly visible, with new data from LegalShield signaling a potential summer surge in consumer bankruptcies.
According to the latest release of LegalShield’s Consumer Stress Legal Index (CSLI), bankruptcy-related legal inquiries hit their highest level since early 2020, offering a stark warning that many families are approaching a financial breaking point.
LegalShield’s data, derived from more than 35 million legal service requests since 2002, serves as a leading indicator of broader economic trends. The company’s Bankruptcy Index, which historically leads actual bankruptcy filings by two quarters, jumped to 36.4 in Q1 2025—up sharply from 33.3 in the previous quarter and 30.0 in the same period last year.
The Warning Signs Are Mounting
The rise in bankruptcy inquiries comes as American households grapple with a perfect storm of economic challenges: record-high consumer debt, sustained elevated interest rates, and growing price pressures driven by new tariff announcements.
These economic stressors, combined with modest wage growth (according to US Labor Statistics for March) and limited access to credit, seen through growing share of discouraged borrowers—those who did not apply for credit due to expectations of rejection—reaching 8.5% (Federal Reserve Bank of New York), the highest since the survey’s inception in 2013—suggest a fragile environment—particularly for working- and middle-class families.
“Bankruptcy inquiries hit the highest we’ve seen since early 2020, just before Americans’ checkbooks were boosted by COVID checks from the government,” said Matt Layton, LegalShield’s Senior Vice President of Consumer Analytics. “When you combine record debt, rising delinquencies, and prolonged financial stress, topped by price pressures driven by tariff uncertainty, the risk of a summer surge in bankruptcy filings becomes very real.”
Consumer Stress Becomes the “New Normal
The CSLI closed Q1 2025 at 65.3, down slightly from 67.3 at the end of 2024. While the small decline may suggest improvement, LegalShield analysts caution that the drop was largely driven by seasonal factors, including tax refund season and temporary job strength.
Underlying stress indicators—such as bankruptcy and foreclosure inquiries—actually rose during this period, pointing to a disconnect between perceived and actual consumer financial health.
LegalShield’s index includes three key sub-indices:
Bankruptcy Index
Q1 2025: 36.4 (up from 33.3 in Q4 2024)
Insight: Consumer debt levels have reached alarming levels. Credit card delinquencies (90+ days late) hit a 14-year high, and credit card balances soared to a record $1.21 trillion. The surge in bankruptcy inquiries suggests that many households are turning to legal assistance as a last resort.
Foreclosure Index
Q1 2025: 41.3 (up from 40.1 in Q4 2024)
Insight: Homeowners are under pressure. Elevated mortgage rates and affordability constraints continue to impact the housing market. With refinancing options limited, many are falling behind on payments, leading to a steady rise in foreclosure-related legal consultations.
Consumer Finance Index
Q1 2025: 97.9 (down from 108.5 in Q4 2024)
Insight: Although consumer finance inquiries decreased—likely due to temporary relief from tax refunds and job gains—the underlying risks haven’t disappeared. With tariffs expected to raise prices further, consumers may soon feel renewed financial pain.
Consumer Confidence Weakens, Signaling Caution Ahead
Further validating these warning signs, the University of Michigan’s Consumer Sentiment Index dropped to 75.3 in early April, down from 79.4 in March, reversing months of optimism. The decline reflects growing concerns about inflation, interest rates, and long-term financial stability.
Consumer confidence is a vital gauge of future household spending. When sentiment falls, spending typically declines—especially on discretionary items—slowing overall economic activity. The recent drop suggests consumers are becoming more cautious, reinforcing the outlook from LegalShield’s legal inquiry data that trouble may lie ahead.
“Consumers are more uncertain about their personal finances and future income expectations,” said Joanne Hsu, Director of the University of Michigan’s Surveys of Consumers. “The decline in sentiment is broad-based across income, age, and education groups.”
The weakening in consumer confidence—combined with rising bankruptcy and foreclosure inquiries—could signal that households are preparing to pull back on spending, further dampening economic momentum into the summer.
Tariffs Add Fuel to the Fire
Newly announced tariffs are poised to raise the cost of consumer goods in the coming months, worsening the inflationary pressures that have already eroded household purchasing power.
Higher import costs on a broad range of products could stretch household budgets even thinner, particularly for low-income families already struggling to make ends meet.
This added pressure could be a major factor in driving many consumers from financial stress to financial crisis—triggering a rise in bankruptcies that may be seen over the summer months.
Housing and Construction Also Feeling the Squeeze
LegalShield’s Housing Construction and Sales Indices also reflect economic headwinds. The Housing Construction Index dropped to 114.1 in Q1 from 118.4 in the prior quarter, while the Housing Sales Index slipped to 94.1 from 97.9. Both indices signal cooling activity due to elevated mortgage rates and rising material costs.
Reduced housing starts—an important leading economic indicator—suggest not only a slowdown in real estate, but also a drag on related industries, including construction materials, furniture, and home appliances.
What This Means for Main Street
While Wall Street has largely shrugged off signs of consumer distress in recent months, Main Street tells a different story. LegalShield’s unique dataset, based on over 150,000 monthly legal inquiries from everyday Americans, offers a ground-level view of household economic health that’s often missed in broader market indicators.
The takeaway? Despite temporary relief from tax season and job market strength, the foundational economic stress facing millions of households is growing. With rising debt,
high housing costs, and tariffs in place—alongside a dip in consumer confidence—the conditions are ripe for a spike in bankruptcy filings this summer.
About the LegalShield Consumer Stress Legal Index
The CSLI is built on three subindices—Bankruptcy, Foreclosure, and Consumer Finance—and is based on legal assistance requests from LegalShield members. With more than two decades of data, the CSLI provides early signals of changes in household financial health. It has become a trusted tool for policymakers, economists, and businesses seeking insights into real-time consumer behavior and stress.
Looking Ahead
LegalShield’s report may be a wake-up call for policymakers and economic stakeholders. With warning signs flashing across multiple indicators, questions are rising as to where intervention might occur to prevent further deterioration in household finances.
As America continues to navigate the post-pandemic economic landscape, the challenges facing the average consumer—from debt to housing to inflation—require close attention. If these trends persist, a summer spike in bankruptcy filings may indicate the start of deeper economic challenges.
