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Burbank Leader

Burbank City Council candidate says bankruptcy was a 'business decision'

By Alene Tchekmedyian, alene@tchekmedyian@latimes.com

10:05 AM PST, December 26, 2012

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City Council candidate David Nos filed for Chapter 13 bankruptcy last December -- a "business decision" he said he was forced to make after encountering circumstances beyond his control amid a rough recession.

Nos had been running his printing business — CBFS Inc. — in Burbank for about 30 years. In spring 2010, he renewed leases on two Xerox machines for four years at roughly $2,000 a month, and a third machine for five years, also at roughly $2,000 a month, according to the lease agreement listed in a lawsuit filed by Xerox.

The recession, and the fact that one of his largest customers — a trade show operator — was shifting its model to include more digital services and therefore less printing, bruised his business, Nos said.

His company’s gross income in 2007 was about $600,000; in 2008, it dropped to just under $500,000, he said.

The financial troubles were exacerbated, he said, when Xerox leased copy machines to his largest account — cutting him out of the equation and costing $200,000 a year in lost business.

“They had another sales team that went directly to my accounts and sold them the machines,” he said. The customer, he added, was a service company with 1,200 employees, but he declined to give the name.

U.S. Bankruptcy Court records show a further decline in his business’ gross income, which dropped from $255,736 in 2009 to $189,803 in 2010, and to $143,073 in 2011.

What Xerox did was legal, Nos said, since he didn’t have a non-competition agreement.

“The market’s open,” he said.

To make up for declining business, Nos said he acquired another printing business and began to offer email management services.

While trying to rebuild his company, Nos struggled to make the monthly lease payments on the three machines, he said, falling about five months behind.

“We couldn’t build the income fast enough at that point to recoup the loss,” he said.

So he shut down the CBFS corporation in September last year to prevent Xerox from coming after him personally, and a day later, opened a sole proprietorship in the same name, he said.

On Dec. 27, 2011, Nos filed for Chapter 13, which is designed for those with a steady income and allows a debtor to keep his or her property and pay all or part of the debts over time.

In February, Nos reached a payment plan with the court and the handful of unsecured creditors — out of the roughly dozen he owed — who decided to go after the money. Unsecured claims can include credit card debts, medical bills or legal bills.

For five years, Nos must pay $310 monthly to the courts, which distributes the funds to creditors, according to U.S. Bankruptcy records.

Creditors don’t always seek what they are owed after an entity files for bankruptcy because they may feel it’s not worth the hassle, said Nos’ attorney, Sylvia Lew.

In March, Xerox sued CBFS Inc. in U.S. District Court for breach of contract. The lawsuit is still pending, records show.

Xerox attorney Robert McKendrick declined to comment on the case.

CBFS Inc. was officially dissolved on Sept. 20, shortly after the company’s 2011 final tax returns were filed.

Nos said he’s bouncing back from his financial struggles — his company’s revenue has grown $20,000 between this year and last, he said — and noted that Donald Trump has declared bankruptcy multiple times.

He feels the experience makes him more qualified to run the city and reveals his commitment to transparency.

When asked how he can manage the city’s budget given his financial history, he said his troubles have given him perspective.

“It doesn’t make me any less capable to do the job,” he said. “It probably helps because it gives me a better perspective on danger signals, to see some that people may not even be aware of, but I certainly am now."

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Follow Alene Tchekmedyian on Google+ and on Twitter: @atchek.