How Does Bankruptcy Affect My Security Clearance?

Contrary to popular myth, bankruptcy filings do not trigger security clearance revocation, denial, or other adverse action. Neither the government nor private entities, like employers or landlords, may discriminate against bankruptcy filers. However, a bankruptcy filing could trigger a DoD Directive 5220.06 inquiry. After notice and hearing, the DoD may take adverse action against a security clearance or a security clearance application.

Guideline F, the relevant portion of Directive 5220.06, concerns financial problems, not bankruptcy filings. People file bankruptcy to cure their financial problems. These problems could result in significant adverse action. But a bankruptcy filing, especially if the security clearance holder has a Chicago bankruptcy lawyer, often has the opposite effect. Far from adversely affecting a security clearance, this filing could save it.

Notice

The DoD is rightfully concerned that people with financial problems may sell secrets to raise money. Desperate people take desperate actions.

Usually, any adverse proceeding, like a creditor lawsuit or property foreclosure, must take place after the judge closes the bankruptcy, because of the Automatic Stay. However, since national security is an issue, many judges allow 5220.06 notice and hearing to proceed immediately. Under this directive, the DoD could take adverse action because of:

• A history of unmet financial obligations,
• Debts related to illegal activity, like fraud and embezzlement, or risky activity, such as drug abuse or gambling, and/or
• Unwillingness or inability to pay debts.

Most bankruptcy debtors don’t fit into these categories. The course is a good example. Most bankruptcy debtors fall behind on a certain obligation, such as home mortgage payments. That delinquency triggers a snowball effect that affects other areas.

Additionally, a partnership with a Chicago bankruptcy lawyer could cure the problem. Most people file bankruptcy because they’re willing to do something about the problem.

Hearing

Usually, a lawyer represents the debtor at a subsequent security clearance hearing. The Fifth Amendment requires such hearings. A hearing gives a lawyer a chance to present mitigating circumstances, such as:

• Timing: The case for adverse action is stronger if the financial problems are recent. Bankruptcy is normally a last resort for most people. In many cases, the underlying financial problem, like falling behind on credit card payments, occurred months or years prior to filing.
• Circumstances: Usually, circumstances largely beyond the debtor’s control, such as “loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation,” compel people to file bankruptcy. These are the same mitigating circumstances listed in subsection E2.A6.1.3.3.
• Current Efforts: Another mitigating circumstance is a good-faith effort to “resolve” debts. That phrase is an apt description of bankruptcy. People file bankruptcy to resolve their debts through discharge or a protected repayment schedule. Additionally, bankruptcy requires financial counseling classes, which are further evidence of the holder’s good-faith effort.

Chapter 7 discharges most credit card bills, medical bills, and other unsecured debts in under nine months. Chapter 13 gives debtors up to five years to catch up on past-due secured debt payments, like home mortgage payments.

 Work With a Thorough Cook County Lawyer

No matter what kind of financial problem you are having, bankruptcy could be a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Source:

law.cornell.edu/uscode/text/11/525