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Settling nonconnected PAC debts for less than the amount owed

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.

Creditor’s rights

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

The debt settlement rules do not apply to disputed debts, which are covered by other rules. The rules also do not apply to bank loans.

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.