Eligibility for debt settlement
A committee that has outstanding debts but wants to terminate may settle its debts for less than the full amount owed to the creditors. This option is available only to a terminating committee—i.e., a committee which no longer intends to support candidates and which receives contributions and makes expenditures only for the purpose of paying winding-down administrative expenses (if any) and retiring debts.
An ongoing committee—i.e., a committee that does not qualify as a terminating committee—is not eligible for debt settlement and must continuously report debts until they are extinguished.
Debt settlement rules
A commercial vendor (incorporated or unincorporated) may forgive or settle debts owed by a committee without incurring a contribution if:
- Credit was initially extended in the ordinary course of business, and the terms of the credit are similar to those observed by the vendor when extending a similar amount of credit to a nonpolitical client of similar risk and size of obligation;
- 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.
No commercial vendor or other creditor is required to forgive or settle debts owed by committees.
Debt settlement plans
Once a terminating committee has reached an agreement with a creditor, the treasurer should file a debt settlement plan on FEC Form 8.
Debt settlement plans must include the signature of all creditors listed in Part II of Form 8. The treasurer may use a separate form for each debt or may combine several debt settlements in one plan.
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 (e.g., staff using personal funds or credit to purchase goods and services on behalf of the committee);
- Salary owed to committee employees; and
- Loans owed to political committees or individuals, including candidates.
Debts not subject to settlement
Completing Form 8
Step-by-step instructions for completing Form 8 are included with the form. The treasurer must sign and date the first page of the completed form.