Settling debts for less than the amount owed

Eligibility for debt settlement

A committee that has outstanding debts but wants to terminate may be permitted to settle its debts for less than the full amount owed to the creditors if the creditors agree and meet certain requirements. This option is available only to a terminating committee—that is, a committee that, in preparing to file a termination report, has stopped making or accepting contributions and making expenditures other than for the purpose of paying winding-down administrative expenses (if any) and retiring debts.

An ongoing committee—that is, a committee that does not qualify as a terminating committee—may not settle any outstanding debts for less than the entire amount owned and must continuously report debts until they are extinguished. However, the committee may resolve their disputed debts, and may request a Commission determination that such debts are not payable. Creditors also may forgive debts owed by ongoing committees under certain limited circumstances.

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
  
• Loans owed to political committees or individuals (including candidates).

Debts not subject to settlement

The debt settlement rules do not apply to:

• Public funds that a party committee may be entitled to receive.
• Disputed debts, which are covered by other rules.
• Bank loans and lines of credit.

Debt settlement rules

A commercial vendor (incorporated or unincorporated) may forgive or settle debts owed by a committee without making a contribution if:

• Credit was initially extended in the ordinary course of business, and the terms of the credit are substantially similar to those observed by the vendor when extending credit to a nonpolitical debtor 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. Such efforts might include, for example, requests for payment, withholding delivery of additional goods until overdue debts are satisfied, 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 Form 8. Debt settlement plans must include the signature of all creditors listed in Part I of Form 8. The treasurer may use a separate form for each debt or may combine several debt settlements in one plan. The terms of the debt settlement, as well as a signed statement from each creditor indicating agreement to the terms of the settlement owed to that creditor, must be provided in the debt settlement plan.

Completing Form 8

Step-by-step instructions for completing Form 8 are available. The treasurer must sign and date the first page, Part I.

Commission review

The Commission reviews each debt settlement plan to ensure compliance with the rules and with the criteria listed in Commission regulations.

After reviewing the plan, the Commission sends a written notification to the committee.

Payment to creditors

The committee must postpone paying the creditors included in a plan until the Commission has completed its review.

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, determined to be unpayable, or otherwise extinguished.