In a way, a security clearance is an asset without any current economic value, like stock options or a right to deferred compensation. Unlike these assets, however, the trustees (people who oversee bankruptcies for the judges) have no authority to seize security clearances, so contrary to popular myth, filing bankruptcy does not automatically mean the loss of a vital security clearance. In fact, voluntary petitions may be the best way to keep these items.

There is some cause for concern, because financial problems could be a basis for adverse action, alongside loyalty questions, undesirable personal habits, a criminal past, and several other considerations. However, no one can take action against a security clearance without notice and hearing. And, DoD Directive 5200.6 creates a blueprint for defeating such action in the unlikely event that it occurs.

The Concerns

In a nutshell, the DoD is not terribly worried about unpaid bills, because we all have them from time to time. Instead, the DoD is concerned about massive amounts of debt that the holders are unwilling to address. Part of that description applies to consumer bankruptcy situations, but not all of it. The listed “disqualifying conditions” in Guideline F are:

  • History of Unmet Obligations: This condition usually applies to bankruptcy, because most debtors have more than one past-due bill. But their delinquency nearly always comes from a single source, like a divorce or job loss, so upon closer inspection, this condition is also inapplicable to most bankruptcies.
  • Security-Related Financial Problems: Guideline F lists “gambling, drug abuse, [and] alcoholism.” Consumer debts related to illegal or immoral activity are extremely rare.
  • Unwillingness to Satisfy Debts: Filing bankruptcy is a proactive way to deal with debts by either paying them back or legally eliminating them, so bankruptcy is the complete opposite of doing nothing.

The fourth condition, unexplained affluence, normally does not apply to consumer bankruptcies.

Mitigating Factors

At a hearing to determine if adverse action is appropriate, the clearance holder can present any relevant defense. The preferred defenses listed in Guideline F all involve consumer bankruptcy in some way.

  • Not Recent: Most people do not even consider filing bankruptcy until they spend some time trying to resolve debt on their own.
  • Isolated Incident: As mentioned earlier, most bankruptcies occur because of one-time financial emergencies. They may occur again, but then again, they probably will not.
  • Lack of Control: The examples in Guideline F — “loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation” — almost perfectly mirror many of those “top five reasons that people file bankruptcy” lists.
  • Back in Control: According to the guideline, “clear indications that the problem is being resolved or is under control” weigh in favor of the clearance holder. Bankruptcy is usually the only way to take control of unmanageable finances.
  • Make an Effort: The Guideline states that individuals should try to control their debt problems and take decisive action in this regard. Bankruptcy fits both these bills.

If unexpected affluence is the issue, the holder must prove the windfall came from a legal source.

Contact Aggressive Lawyers

A voluntary petition may be the best way to preserve a security clearance. For a free consultation with an experienced bankruptcy lawyer in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.