Testimony of Michael Moore
National Retail Federation
Owner, Badcock Home Furnishing Centers
In Gainesville and Cornelia, Georgia
Commercial and Administrative Law
Subcommittee of the
House Judiciary Committee
March 17, 1999
Good Morning. My name is Michael Moore. I am the independent owner and operator of two Badcock Home Furnishing Centers in Georgia - one in Gainesville, and the other in Cornelia. I am testifying today on behalf of the National Retail Federation, of which the Badcock Company is a member. In addition, Badcock is a member of the National Home Furnishing Association, a group that is also supportive of H.R. 833. I would like to thank the Chairman for providing me with the opportunity to testify before this distinguished Committee today.
The National Retail Federation (NRF) is the world's largest retail trade association with membership that comprises all retail formats and channels of distribution including department, specialty, discount, catalogue, Internet and independent stores. NRF members represent an industry that encompasses more than 1.4 million U.S. retail establishments, employs more than 20 million people -- about 1 in 5 American workers -- and registered 1998 sales of $2.7 trillion. In its role as the retail industry's umbrella group, NRF also represents 32 national and 50 state associations in the U.S. as well as 36 national associations representing retailers abroad. NRF's members and the consumers to whom they sell are significantly impacted by the recent surge in consumer bankruptcy filings.
As an independent furniture owner, my relationship with Badcocks allows me to finance and grant credit to my customers. They arrange the financing that I provide for my customers, but as an independent retailer, I am ultimately responsible, and the success or failure of a customer to make payments affects my store. Ultimately, I bear the responsibility for my credit decisions. The losses attributed to write-offs and bankruptcies directly affect my stores' bottom line. Over the past several years, I have seen a dramatic increase in consumer bankruptcy filings among my customers - and it has had a devastating impact on my business. In fact, in the past few years, bankruptcy losses in my two stores have increased well in excess of 200 percent. Sadly, this situation is not unique to my furniture dealerships. My conversations with other retailers have revealed that their losses have increased at an equally alarming rate.
It is important to note that during the period in which I have seen my bankruptcy losses soar, my business practices have not changed. I have continued to use the same careful standards for granting credit. In fact, because of the nature of my business, I often personally sit down with my customers before they make a purchase on credit to determine exactly how much debt they can afford to take on, and what types of terms and payment schedule they can handle. I want to make sure that they can and will be able to make good on their responsibility.
In my experience, much of the recent surge in bankruptcies results from changes in consumer attitudes regarding debt repayment, misunderstandings about the bankruptcy process, and/or some misuse of the system. I am experiencing a phenomenon that is extremely difficult to deal with, and otherwise hard to explain: good customers with good payment histories who are making purchases in my store and then filing for bankruptcy 30-90 days afterwards.
(As I talk to my customers about why they have filed for bankruptcy), I have come to learn that there is a great deal of misinformation that many of them receive during the bankruptcy process. In fact, it has become clear to me that many customers go into bankruptcy without the proper information or legal advice. Sometimes it appears they are actually misled into filing for bankruptcy. Some consumers have been enticed by bankruptcy mills - businesses or law firms which purport to help consumers "consolidate" or "manage" their debts, but actually steer consumers into filing bankruptcy petitions regardless of whether they need to do so. Some of these individuals do not even understand that they have filed for bankruptcy. Others do not know why they have filed in a particular chapter, or what the consequences of their decisions are. I have seen a number of cases where the individual simply needed consumer credit counseling and an explanation of the various alternatives and resources available to them.
It is my understanding that a bill before Congress, H.R. 833, would make several important changes to help ensure that consumers are not mistakenly steered into bankruptcy, or into the wrong chapter. H.R. 833 includes provisions that would require bankruptcy mills to provide detailed disclosures regarding the significance of bankruptcy and the nature of their services. Bankruptcy service providers would also be required to explain the alternatives to bankruptcy before the case is filed. It is my understanding that the legislation would also ensure that debtors receive credit counseling within the 90-day period before filing for bankruptcy. Again, in my experience, if some of my bankrupt customers had received proper counseling, they would never have needed to file. I believe it is extremely important to give consumers tools such as these to enable those who do not truly need bankruptcy protection to work through their financial troubles and manage their debt, thereby avoiding bankruptcy and preserving their credit.
Aside from these misunderstandings about bankruptcy, I have also seen what appear to be deliberate abuses of the current system. Under the current law, individuals can file a chapter 7 once every six years, and refile a chapter 13 numerous times. I have literally seen customers who have refiled for bankruptcy the same month that they received their discharge from the prior bankruptcy plan. This is a deliberate misuse of the current system.
Furthermore, I have an increasing number of customers who file for bankruptcy within a short period of time after making a major purchase. These individuals apparently are loading up on goods at the same time they are visiting their bankruptcy attorneys. Indeed, I've had people file for bankruptcy after buying, but before they receive their first monthly statement. In one situation, a customer bought a $2,000 big screen television within several weeks of filing. Ironically, it was the retailer who had to spend over $500 in attorney's fees trying to get the television back. Our laws must be tightened to prevent those who are deliberately using the Bankruptcy Code as a tool to load up on merchandise on credit that they have no intention of ever repaying.
Finally, some consumers are using Chapter 13 to reduce the contract price (and other terms) of purchases they make from dealers who hold a security interest in the merchandise. It is unfair for an individual to purchase a $500 dining room set on sale, and then turn around 4 months later and claim that its value should be crammed down to $75 or $100 when they file for bankruptcy. There should be a reasonable period during which this kind of abuse should not be tolerated. Beyond that period, there should be a requirement that the secured goods be priced at a fair market value based on what they would sell for in an open retail environment, such as at a good used furniture store, not the firesale prices some attempt to use now. H.R. 833 does contain a fair valuation provision, and we support it.
In closing, I urge Congress to move swiftly to enact legislation that would restore the principles of fairness and personal responsibility to our bankruptcy system. I believe we should give consumers the tools to understand the consequences of bankruptcy, while at the same time reform those provisions of the current Code that allow some individuals to game the system and misuse bankruptcy as just one more financial planning tool. Ultimately, we must return our bankruptcy system to its original mission: a safety net intended to provide a fresh start for only those individuals truly in need.