If I File Bankruptcy, Will I Lose My Security Clearance?

This question is on the lips of many people who work for the DoD or a defense contractor. In such positions, losing one’s security clearance could be worse than losing one’s hearing. There are accommodations available for hearing loss, but not for the loss of a security clearance.

The powers that be have a right to be concerned as well. People with financial problems sometimes make rash decisions, including the sale of government secrets. That’s why the venerable DoD Directive 5220.06 specifically addresses this issue.

In most cases, filing bankruptcy does not cause people to lose their security clearances. In fact, quite often, a bankruptcy filing, particularly a Chapter 13 repayment plan bankruptcy, may be the one thing that prevents adverse action against a security clearance.

Areas of Concern

Guideline F of Directive 5220.06 covers financial concerns. As a preliminary matter, it’s significant that this document places financial concerns alongside alcoholism and other personal habits. Drinking a six pack on the weekends is not grounds for security clearance revocation, and neither are bankruptcy-related financial problems, as follows:

• – History of Unmet Obligations: A few bankruptcies involve a history of unmet financial obligations. However, most people file bankruptcy because of one large debt, like a huge medical bill, which has a snowball effect.
• – Deceptive Financial Practices: Most bankruptcies have nothing to do with “embezzlement, employee theft, check fraud, income tax evasion, expense account fraud, filing deceptive loan statements, and other intentional financial breaches of trust.” These obligations are usually not dischargeable in bankruptcy anyway.
• – Financial Difficulties Linked to Security Concerns: Similarly, very few bankruptcies involve “ gambling, drug abuse, alcoholism, or other issues of security concern.”
• – Unwillingness to Satisfy Debts: The mere fact that people file Chapter 13 indicates a willingness to repay debts.

Essentially, the DoD is concerned about illegal or pseudo-legal activities, and not about debts themselves.

Mitigating Circumstances

The listed debt problems have little or nothing to do with consumer bankruptcy. The listed mitigating circumstances, on the other hand, have a lot to do with bankruptcy:

• – Isolated Incident: As mentioned, most debt problems which lead to bankruptcy filings were one-time incidents due to a financial storm of life. More on that in the next bullet point.
• – Lack of Control: The DoD does not consider financial problems linked to “loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation” to be a security concern. This list almost mirrors the list of the top reasons why people file bankruptcy.
• – Indication of Resolution: Chapter 13 filers must seek debt counselling and take action to control their debt problems. In other words, there are “ clear indications that the problem is being resolved or is under control.”
• – Good Faith Effort to Pay Debts: This mitigating circumstance does not require debt payment. It merely requires a good faith effort to pay debts. That’s the very essence of a Chapter 13 bankruptcy.

So, far from putting your security clearance at risk, bankruptcy may save it from debt-related adverse action.

Count on Dedicated Lawyers

If you have past due debts, you should consider Chapter 13. For a free consultation with an experienced Chicago Chapter 13 bankruptcy attorney, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Resource:

esd.whs.mil/Portals/54/Documents/DD/issuances/dodd/522006p.pdf?ver=2019-04-03-105534-323

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