Only a terminating committee may settle a debt for less than the full amount owed to the creditor. A “terminating committee” is one that does not intend to raise contributions or make expenditures—except for the purposes of paying winding-down costs and retiring its debts.
An authorized committee may not settle any debts if any other authorized committee of the same candidate has enough permissible cash on hand to pay all or part of the debt.
Debts subject to settlement
The types of debts that are subject to debt settlement requirements include:
- Amounts owed to commercial vendors,
- Debts arising from advances by individuals (for example, staff using personal funds or credit to purchase goods and services on behalf of the committee),
- Salary owed to committee employees, and
- Debts arising from loans from political committees or individuals, including candidates.
The debt settlement rules do not apply to disputed debts, which are covered by other rules.
They also do not apply to bank loans, though the Commission recognizes that under extraordinary circumstances, such as the death or bankruptcy of the candidate, settlement of bank loans may be appropriate. The Commission will consider specific requests on a case-by-case basis.
Debt settlement rules
A commercial vendor (incorporated or unincorporated) may forgive or settle a debt owed by a committee without incurring a contribution if:
- Credit was initially extended in the vendor’s ordinary course of business, and the terms of the credit were similar to those observed by the vendor when extending a similar amount of credit to a nonpolitical client of similar risk;
- The committee undertook all reasonable efforts to satisfy the outstanding debt, such as fundraising, reducing overhead costs and liquidating assets; and
- The vendor made the same efforts to collect the debt as those made to collect debts from a nonpolitical debtor in similar circumstances. Remedies might include, for example, late fee charges, referral to a debt collection agency or litigation.
If the committee or the creditor fails to take these steps, the difference between the amount owed and the amount actually paid may be considered a contribution subject to limits and source prohibitions (i.e., prohibited if the vendor is incorporated).
Debt settlement plans
After a terminating committee has reached agreements with its creditors, the treasurer must file a debt settlement plan on FEC Form 8. Once the plan has been submitted to the Commission for review, the committee must postpone payment on the debt until the Commission has completed the review. Payments to creditors must be disclosed in the committee’s termination report.
Completing Form 8
Step-by-step instructions for completing Form 8 are included with the form. The Commission recommends that the committee include as many debts as possible in the plan and submit a separate Part II (second page) for each creditor along with Part I (cover page). The treasurer must also submit Part III (third page) to indicate how the committee intends to address other debts not included in the submission. The treasurer must sign and date the first page. The creditor must also sign the form to indicate his or her acceptance of the settlement. As an alternative, the treasurer may attach a signed statement from the creditor containing the same information.
Reporting debts undergoing settlement
Debts undergoing settlement must be continuously reported until the Commission has completed its review of the committee’s debt settlement plan. The committee may file a termination report once all debts have been paid, settled, forgiven or otherwise extinguished.
A disputed debt is a bona fide disagreement between the creditor and the committee as to the existence of a debt or the amount owed by the committee. When filing a debt settlement plan, a terminating committee must describe any disputed debts and the committee’s efforts to resolve them on Part III of Form 8.
No commercial vendor or other creditor is required to forgive or settle debts owed by committees.