Bankruptcy is on the mind of a lot of jewelers. It’s not their own that’s worrying them, but that of their customers. The number of Americans seeking court protection from creditors soared to 1.4 million last year. That represents one in every 71 households. Over the past two years alone, while the country enjoyed vigorous economic health, personal bankruptcy filings by consumers leaped 60%.
For businesses that offer credit, these are alarming figures. “This is costing retailers billions of dollars annually, and jewelers are particularly hard hit,” says Mallory Duncan, vice president and general counsel for the National Retail Federation (NRF). That’s why Jewelers of America, NRF, the National Federation of Independent Businesses (NFIB), and other retail groups this summer put their active support behind a revision of the consumer bankruptcy laws.
Bankruptcies and exemptions. It’s been 20 years since the last substantial reform of the federal bankruptcy code and 40 years since major changes were made affecting personal bankruptcy filings. Two sections are key:
Chapter 7 requires a debtor to liquidate all assets above an official exemption level to repay secured and unsecured creditors. But if the assets’ total value is below the exemption (as is true for most individual filers), the debtor can simply walk away from the debts.
Chapter 13 forces wage earners to work out a court-approved repayment plan.
Each state sets its own assets exemption level, and some set it quite high. Florida and Texas, for example, have unlimited homestead exemptions, and debtors can protect virtually anything declared part of their homestead equity from creditors’ claims.
“Some filings are genuine,” says NRF’s Duncan, “but many misuse the system. It has become trendy for some people who can afford what they owe not to pay it.” Indeed, the fastest-growing group filing for personal bankruptcy is people earning $50,000 to $100,000 a year, those “who can afford to repay and don’t,” he asserts.
Reforms. Both the House of Representatives and the Senate have bills to correct abusive bankruptcy filings. The House version – HR 3150, introduced by Rep. George W. Gekas (R-Pa.) – was approved in June in a 306-118 vote.
The House bill, which has gotten considerable media attention, had 200 cosigners, including 40 Democrats. Its key provision is a first-ever “means test” making it harder for individuals to automatically file for Chapter 7. A debtor earning at least the median U.S. household income (currently $35,500) and who can repay at least 20% of what he or she owes over five years (based on a federally required means formula) must file for Chapter 13. But anyone earning less may file for Chapter 7, even if he or she can repay some debt. That covers 75% of individual filings.
The bill also sets a $100,000 cap on homestead exemptions and limits the amount of credit card debt that can be erased. It would force borrowers facing bankruptcy to repay any credit charges made within 90 days of a bankruptcy filing.
The Senate bill (SR 1301), introduced by Sens. Charles Grassley (R-Iowa) and Richard Durbin (D-Ill.), was expected to be voted on in July. A major difference is that rather than using a means test, it allows anyone – creditors, bankruptcy judges, or trustees – to challenge a Chapter 7 filing. If the challenge is sustained, the individual would have to file for Chapter 13.
Retail support. The House bill has the backing of JA (which urged its 13,000 members to contact senators and members of Congress to support reform), NFIB, and NRF, plus the National League of Cities, credit card firms, and banking groups. The bill’s provisions make it harder for people “to simply walk away from their debts, including jewelry purchases made on credit,” says Deborah Outlaw of Timothy H. Haake & Associates, JA’s Washington lobbyists.
Still, the reforms have faced heated opposition. The House bill was portrayed by critics in and outside Congress as “pro-banking,” “pro-credit card,” and even “anti-mother” because its debt repayment provisions allegedly put credit card companies ahead of single mothers owed child support by deadbeat fathers. The Clinton administration opposes it for that reason. Some critics also foresee extra paperwork and more difficulty for a business to complete a financial reorganization.
Outlaw dismisses such objections. “What these provisions do is restore integrity to the bankruptcy system,” she says. Duncan concurs. Without reform, “third-party sources are more reluctant to extend individual credit in view of rising losses due to increased Chapter 7 filings,” he notes. “That is particularly annoying for a jeweler who closes a good sale but can’t finance the purchase.” Major credit card companies are also charging jewelers and other retailers higher transaction fees because of their own rising costs. Jewelers who arrange their own credit (e.g., through in-store cards) face those higher losses directly themselves.
At press time, the odds favored passage of consumer bankruptcy reform (if a compromise of the House and Senate versions is hammered out) before Congress adjourns this fall. But if Congress doesn’t act or if President Clinton vetoes the bill, say analysts, it’s unlikely bankruptcy reform will come up again until after the next presidential election.
JEWELERS IN THE U.S. CONGRESS
Mallory Duncan of the National Retail Federation says many bankruptcy filings are a “misuse of the system.”
First, there was one. Soon, there may be two.
For the first time ever, two members of the jewelry industry are running for Congress. One is Sen. Ben Nighthorse Campbell, a Native American jewelry designer seeking re-election for a second six-year term as a Colorado Republican. The other is Gary Hofmeister, an Indianapolis jeweler and Republican, who is running for the House of Representatives. Even though he’s never held political office, Hofmeister is given good odds of winning by political analysts, as is Campbell.
“First a jeweler.” Campbell, who is part Northern Cheyenne, has a colorful background, including stints as a field worker, truck driver, teacher, rancher, deputy sheriff, prison counselor, and jewelry designer. He also was a gold-medal winner in judo at the 1963 Pan American Games and captained the U.S. Olympic judo team in 1964 in Tokyo.
But of all his occupations, Campbell “thinks of himself first as a jeweler,” says his son Colin, a Gemological Institute of America graduate who helps run the family jewelry firm in Ignacio, a tiny town within an Indian reservation near the Colorado-New Mexico border. Ben Nighthorse Campbell has won more than 200 first-place and best-of-show awards for his designs, which command top-dollar prices.
Campbell was elected to the U.S. Senate in 1992 as a Democrat (but switched to the Republican Party in 1993), after six years in the House of Representatives. He is the first American Indian in almost 70 years to serve in the Senate (where he chairs the Indian Affairs committee and is on the Energy and Veterans Affairs committees) and the first-ever senator from the jewelry industry.
Campbell played a key role in the defeat of the luxury tax in 1993. As owner of a jewelry manufacturing business, he is also a strong supporter of small business. For example, he favors only moderate increases in the minimum wage and only if tied to inflation and the cost of living. He has voted to cut the capital-gains tax to spur economic growth. And he has been recognized by the National Federation of Independent Businesses for his efforts to eliminate government red tape and bureaucracy.
Campbell, who takes an independent rather than a party approach to voting, also supports tough crime legislation and aid to police.
Though not a member of the Senate jewelry trade caucus, headed by Sen. Alfonse D’Amato (R-N.Y.), he sometimes participates in its meetings and offers advice. (Coming from Colorado, he is also involved in mining issues.) “A lot of people look to him as a representative of the jewelry industry, and his congressional colleagues also come to him for his opinions on issues affecting the industry,” notes his son Colin.
Campbell’s re-election campaign will cost between $3 million and $4 million. As of June, he’d collected $1 million, including $30,000 raised for him by D’Amato and $127,000 from a fund-raiser last spring featuring former President George Bush, who has praised Campbell’s support of families and his tough anti-drug stance. “So, jewelry industry support is critical,” his son says.
There is some. One sign was a fund-raising reception in Campbell’s honor, chaired by leading names in the industry, held in June during The JCK Show at the Las Vegas store of Hyde Park Jewelers, a Colorado-based firm. (The senator was unable to attend at the last minute for personal reasons.)
Meanwhile, in his free time, Campbell continues to design jewelry in a small studio in his Washington, D.C., home. He creates jewelry for congressional colleagues and has made bolo ties for all the living ex-presidents. He is at work on one for President Clinton, to be presented after he leaves office.
Hofmeister’s run. Indianapolis jeweler Gary Hofmeister is running an aggressive campaign to win Indiana’s 10th District, which covers most of the city.
Hofmeister announced his candidacy in November. The 56-year-old founder and CEO of Hofmeister’s Jewelers, a family business doing $8 million annually, has never run for office before. However, he has been active for 17 years in civic and political life.
Hofmeister taught entrepeneurship (under the auspices of Junior Achievement, which promotes business and economic training of young people) to Indianapolis high school students for 10 years and since 1992 has made 14 trips, at his own cost, to present political and business seminars in the former Soviet Union. He traveled to Nicaragua in 1993 and to Bosnia in 1994 with congressional investigative teams. He also holds a lifetime directorship in Meals on Wheels and was president of the Indiana Jewelers Association for two years.
His candidacy, he says, is “a natural continuation” of his community and service work. He says he decided to run for Congress because he felt two other potential Republican candidates were “far left” and wouldn’t offer voters a real choice. (The Democratic opponent is Rep. Julia Carson, a former union official, congressional staffer, and state legislator, who is seeking re-election to a second term.)
As a first-time candidate, he was given little chance by pollsters and party veterans of beating the expected party nominee, a former state senator and mayoral candidate. But Hofmeister’s energetic door-to-door campaign as a “pro-life, pro-family, pro-strong national defense, pro-tough-on-crime conservative,” his 68% name recognition with voters (thanks to 20 years of TV and radio ads for his store), and the help of a battalion of volunteers, including some jewelry customers, produced a major upset in the state’s May primary. Hofmeister defeated his party’s favorite 47% to 44% and now – using the same campaign tactics – wants to cause another upset in November.
Hofmeister’s campaign will cost about $1.1 million (including $300,000 for the primary campaign). A fund-raiser in Washington was planned for July.
Hofmeister’s campaign will center on tax reform, parents’ input in choosing their children’s education, allowing people the option to refuse Social Security, and a ban on certain late-term abortion procedures. If elected, Hofmeister says, he will also try to be a spokesman for jewelers and small businesses in general. “If you made a list of who has been threatened most by government mandates in the past few years, you would have to put small businesses at the top,” he says.
Hofmeister wants repeal of restrictive federal mandates on small business, especially the estate tax. He also advocates tort reform, to reduce the extent of liability – and lawsuits – on businesses. Hofmeister – whose store was the victim of an armed robbery two years ago – also favors tough crime controls. “It’s not an academic issue for me,” he says.
Meanwhile, the rigors of campaigning aren’t affecting the daily operation of Hofmeister’s store, which is celebrating its 25th anniversary. Early this year, he turned its administration over to his son Carter, who is president, and to son-in-law Joe Gillum, vice president.
What role for the American Jewelry Council?
It’s been a year since the American Jewelry Council was revived by several jewelry trade organizations as the voice of the industry in Washington, D.C. But after a flurry of activity last summer, it has kept a low profile.
“There hasn’t been much industry collaboration under AJC’s banner,” says Matthew Runci, executive director of Jewelers of America, which – along with Manufacturing Jewelers and Silversmiths of America – was instrumental in reviving AJC. “But each [AJC member] is working in its own way” to present the views of the industry, he adds. JA, for example, has been active in support of bankruptcy reform, the most serious legislative issue facing the industry this year. MJ&SA, meanwhile, works with jewelry trade caucuses in Congress on issues affecting manufacturers and the industry.
While AJC hasn’t been active this year, there hasn’t been as much need. Last year’s tax reform bill included some (but not all) estate tax changes the industry sought, and a national sales tax is still no more than a whisper in the halls of Congress. “It continues to surface in discussions of tax reform” but is unlikely to be a real threat until after the next presidential election, Runci notes.
Meanwhile, industry lobbyists are reviewing the adequacy of the anti-counterfeiting legislation – another AJC goal – passed last year.
AJC may become more active soon. An announcement of new ideas for the AJC (including possibly another “Industry Day in Washington”) was expected in July from JA’s Runci and James Marquart, executive director of MJ&SA.
As the two industry organizations with the largest constituencies, JA and MJ&SA have been the most active in promoting AJC. “We have the responsibility to take the lead,” says Runci. Creating AJC and its strategy and activities, he adds, is “long-term, not something done overnight” – or in a few months.