ELECTIONS / L.A. CITY COUNCIL : Challenger Knows All About Debt : Campaign: Restaurateur vying for Marvin Braude’s 11th District seat has a host of unpaid creditors, including his own mother.

At a recent campaign event, Los Angeles City Council candidate John B. Handal II had a ready solution to the budget crisis at City Hall: “Start running this city as a business again.”

Presumably, he was not suggesting his own business as a model.

It has been more than two years since Handal and his Brentwood restaurant, San Gennaro Inc., filed for bankruptcy, leaving hundreds of thousands of dollars in debts including federal and state taxes and city utility bills.

Documents filed in U.S. Bankruptcy Court in Los Angeles list 10 court-ordered judgments against Handal in cases involving a former business partner, a landlord, a bank, an insurance company and a number of food and beverage suppliers.

Beyond that, there are dozens of claims by other creditors, including bills from a variety of businesses that provided goods and services to the restaurant, which is still operating under federal bankruptcy protection.

But by far the biggest debt is $270,000 plus court costs and interest to repay what Handal confirmed in an interview was his “misappropriation” and “unauthorized use of funds” from his mother’s trust account.

Despite his financial problems, Handal, 39, likes to portray himself as a successful businessman as he campaigns against longtime Councilman Marvin Braude in the 11th Council District, which includes part of the Westside and San Fernando Valley.

Handal makes a point of telling audiences of his work as president of the Brentwood Village Chamber of Commerce. He never gives any hint of the financial problems he has had for years.

A far different picture emerges from hundreds of pages of court documents, lawsuits and bankruptcy records.

Beginning in the fall of 1987, the records show, creditors began filing and winning lawsuits against Handal for non-payment of various debts. One after another, in courtrooms from Los Angeles to the San Francisco Bay Area, financial judgments were awarded to parties ranging from restaurant suppliers to Wells Fargo Bank and Farmers Insurance.

Even his mother, Wanita Handal, filed a claim after learning that her son had withdrawn $270,000 from her trust account in 1987 to finance the Italian restaurant in Brentwood and an ill-fated branch of the restaurant in Tarzana, Handal said.

“It was without her knowledge,” Handal said. “She said it was an unauthorized use of the money. . . . I stipulated to the fact that this was an unauthorized use of her money.”

Wanita Handal received all of the stock in San Gennaro Inc. as security for the repayment of her son’s unauthorized use of her money.

“We agreed, myself and the corporation, that the money has to be returned to her,” he said.

In October, 1990, Fred Miller, Handal’s former business partner in the Brentwood restaurant, obtained a $105,000 court judgment against Handal for failure to repay a debt.

As various parties tried to collect on their judgments and financial pressures worsened, Handal filed for personal bankruptcy on March 14, 1991. At the time, he sought to liquidate his debts under Chapter 7 of the U.S. Bankruptcy Code.

The following day, San Gennaro Inc. filed for protection from creditors under Chapter 11 of the bankruptcy law, a provision that gives businesses relief from debts while a reorganization plan is prepared. More than two years later, no reorganization plan has been filed.

In his personal bankruptcy case, Handal told the court he had debts totaling $775,095, including such items as $27,000 in unpaid federal income taxes, the $270,000 owed to his mother, and $184,200 for court judgments against him.

The only assets that Handal listed were $2,000 in used furniture at his Los Angeles apartment and $200 in clothing.

“What I had at the time, that’s all it was worth,” Handal said. “If you don’t own a car, you don’t own a house, and you’re in bankruptcy, how much can you have?”

He said he owned “jeans and T-shirts, not a tremendous amount of clothing” and walked, took taxis or borrowed cars to get around.

In court papers, Handal said his business sought bankruptcy protection because “the corporation is unable to pay its debts as they become due and faces the loss of its assets.”

The bankruptcy filing shows San Gennaro owes $26,927 in federal taxes, $7,100 in state taxes and $7,529 to the city Department of Water and Power.

So far, Handal said, a reorganization plan for the business has not been prepared because of legal challenges in the bankruptcy proceedings. The state and federal taxes and city utility charges, like the other debts of the business, remain unpaid.

Under terms of a recent settlement agreement in his personal bankruptcy case, only his mother is to be paid $384,000 over a period of years and two bankruptcy trustees involved in the case are to receive $20,000. The back taxes also must be paid, Handal said.

None of the other 50 creditors will receive anything.

“There are no assets for them to be paid with, so they will not be paid their money,” Handal said.

Handal noted that his situation is hardly unique--that the recession has caused many individuals and businesses to file for bankruptcy.

“I guarantee you there are a tremendous number of people in the district who have gone through their own problems and can sympathize and empathize with the small-business man’s problem today,” he said. “I am no longer the exception. The big black mark of bankruptcy was a thing of the past.”

He was asked if his financial problems, court judgments and failure to pay dozens of creditors, including the federal, state and city government, should disqualify him from being elected to the City Council.

Without a moment’s hesitation, he replied, “Absolutely not.”