After reading a recent New York Times article about stock market jitters caused by worried consumers, I wondered if the stock market indexes could be used as a barometer to predict future personal bankruptcy filings.
After all, we have often heard that the fear on Wall Street is that nervous consumers can short-circuit the country’s economic recovery, which is just starting to pick up, despite the fact that consumer bankruptcy filings continue in very high numbers.
When consumer sentiment falls significantly short of expectations, which is what happened towards the end of the summer (before a slight rebound), it was a sign that consumers were cutting back on their spending as they worried about layoffs. With unemployment approaching ten percent, many consumers are growing increasingly concerned about losing their jobs, assuming they still have them.
Job loss is one of the major reasons why consumers file for bankruptcy help. I see this daily in my Long Island bankruptcy practice, meeting one person or another who has lost a job, lost the ability to work overtime, or has a family member who was laid off.
Although the stock market is indeed rebounding, I would conclude that the ebbs in the stock market have a rebound effect and lead to increased consumer bankruptcy filings several months (or even years) later, as consumers face job loss or the effects of reduced income.