Can a Campaign Go Bankrupt?

Debt retirement gets a little more complicated when candidates lend their own money to their campaign. After an election is over, any campaign contributions that go toward repaying the candidate's own loans serve, in practice, as money directly into a politician's pocket. As a result, campaign law (PDF) now limits to $250,000 the amount a campaign committee can repay the candidate after the election. In the case of the Democratic primary, the election will end when a nominee is selected in Denver. So unless Clinton is able to raise enough money to pay herself back by then, she'll have to write off millions of dollars she lent to her campaign.

What happens when a candidate has no hope of raising enough money after the election to pay off his or her outstanding debts? Technically, political committees can declare bankruptcy, but the practice is almost unheard of since defunct campaigns don't have much in the way of assets. Instead, losing candidates who aren't running again for political office—and consequently don't have an easy way to raise much money—may go through a process with the FEC called "debt settlement" (PDF). To do so, a former candidate must agree with creditors on how much he or she will pay back, and the FEC must verify that each creditor extended the debt in the "ordinary course of business" and tried its best to collect. (Unlike outstanding payments to vendors or staff, bank loans typically can't be forgiven.) If debt settlement fails, the FEC can eventually engage in an "administrative termination" that shuts down the campaign committee and cancels its obligations.