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Obstacles To Bankruptcy: Security Clearances

Posted on: November 2, 2017 by in Bankruptcy
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Some distressed debtors who work at one of the many military bases in Illinois or Indiana, or at one of the many private companies that support these installations, hesitate to file bankruptcy because they are afraid that a voluntary petition will mean the revocation of their security clearance.

But it is illegal to take any adverse action against any individual based solely on a bankruptcy filing. Moreover, the DoD cannot unilaterally take such action. Instead, the security clearance holder must receive actual notice of the proceedings and have an opportunity to present a defense. Finally, according to DoD Directive 5220.6, a Chapter 7 or Chapter 13 petition may actually be the only way to save a security clearance that’s already in jeopardy.

Likely Considerations

As an area of concern, financial considerations are rather far down the list. They are well below items like foreign influence and even sexual misconduct. In other words, individuals who have in-laws who work at foreign consulates or those with disturbing relationship histories are far more likely to suffer adverse action than those with debt problems. The specific concerns are:

  • History of Unmet Obligations: Even if the debtors have multiple unpaid accounts on their credit reports, which is not always the case, such credit history is usually related to one financial storm, such as a job loss, that had a snowball effect.
  • Illegal or Deceptive Practices: Persons with issues such as “embezzlement, employee theft, check fraud, income tax evasion, expense account fraud, filing deceptive loan statements, and other intentional financial breaches of trust” hardly ever file bankruptcy, mostly because such obligations are often not dischargeable.
  • Financial Problems Tied to Security Concerns: Similarly, almost no one files bankruptcy due to “gambling, drug abuse, alcoholism, or other issues of security concern.”

So, most of the listed concerns do not apply to consumer bankruptcy, a fact that carries considerable weight in any adverse action proceedings, such as an attempt to downgrade or revoke a security clearance.

Possible Defenses

The opposite is true of the listed mitigating circumstances, because nearly all of them apply to those who seek consumer bankruptcy protection.

  • Isolated Incident: The same one time storm/snowball effect argument discussed above applies here as well.
  • Uncontrollable Circumstances: Just as people cannot control the weather, people also have either no control, or very limited control, over “loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation.” All these things prompt many bankruptcy filings, and they are all explicitly listed in E2.A6.1.3.3.
  • Good Faith Resolution Effort: A Chapter 13 petition certainly qualifies as a good faith effort to “repay overdue creditors,” and a Chapter 7 petition is often the only alternative available to “otherwise resolve debts.”

Another mitigating circumstance — “The person has received or is receiving counseling for the problem and there are clear indications that the problem is being resolved or is under control” — also applies to all consumer bankruptcy petitions.

Count On Experienced Attorneys

Bankruptcy petitioners have little to fear in the way of security clearance revocation. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.


Bankruptcy And Security Clearances

Posted on: June 20, 2017 by in Bankruptcy
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Fear is one of the most prominent effects of debt problems. Most all of these fears are real, especially since the Supreme Court recently approved aggressive debt collection tactics that are borderline illegal. But some of these fears are largely exaggerated, and the interplay between consumer bankruptcy and a security clearance is one example of the latter.

Under DoD Directive 5220.6, financial problems are one of the thirteen problem areas that may lead to adverse action. It’s important to note that the document never mentions the word “bankruptcy,” and just like it is in many other areas, this procedure may actually be your way out.

Furthermore, when looking at the specifics of Guideline F, the financial problems that often lead to bankruptcy are not really on the DoD’s radar, at least when it comes to revoking a security clearance.


Similar to substance abuse and several other personal conduct areas, the DoD is concerned that persons with financial problems may be pressured to take illegal actions, such as selling secrets, to raise funds. The specific concerns include:

  • – History of Unmet Obligations: This factor is not present in many consumer bankruptcies, and even if there is a history of unmet obligations, the reason is usually one unfortunate event, like a job loss, which triggered a snowball effect.
  • – Illegal Practices: In almost all Chapter 7 and Chapter 13 cases, the debtor files due to debts that cannot be paid as opposed to “embezzlement, employee theft, check fraud, income tax evasion, expense account fraud, filing deceptive loan statements” or “gambling, drug abuse, [and] alcoholism, so this concern is probably inapplicable as well.
  • – Inability to Pay Debts: Yes, this one probably applies, but so do many of the mitigating factors discussed below.

Essentially, the DoD is concerned about debt that is symptomatic of a more serious problem as opposed to simply debt itself.

Mitigating Factors

That theme of debt with a sinister undercurrent continues in the mitigating factors section, as the DoD strongly implies that the “honest but unfortunate” debtor whom the Bankruptcy Code protects is also immune from action under this directive.

  • – Timing: If the debt was “not recent” or was an “isolated incident,” the DoD almost never takes adverse action against a security clearance.
  • – Unexpected: Most people file bankruptcy because of an unexpected job loss or sudden illness. Likewise, debt problems brought on by “loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation” are not actionable.
  • – Turn of Events: If there are “clear indications” that the “problem is being resolved,” and a voluntary petition certainly counts as such, adverse action is not in order.
  • – Effort to Resolve Indebtedness: The guideline does not require the debtor to pay the outstanding debts but simply “resolve” them in some legal way so they they do not cause any undue pressure.

It is a federal crime to discriminate against anyone simply due to a bankruptcy filing.

Contact Aggressive Attorneys

At the Bentz Holguin Law Firm, LLC, we protect your security clearance. Contact us today for a free consultation with an experienced bankruptcy attorney in Chicago.