Bankruptcy And Your Security Clearance

Thousands of people work at Camp Atterbury, Grissom Air Reserve Base, and other military installations in Indiana. Thousands of other people work as military contractors, supporting the servicemembers at these and other military installations. Many of these individuals need a high security clearance to keep their jobs. A persistent myth holds that filing bankruptcy automatically revokes your security clearance. True, financial problems are a possible basis for adverse action in this area.

But, a lot of things must happen first. Initially, the DoD or private employer must provide notice of proposed adverse action, such as security clearance denial or downgrading (e.g. top secret to secret). The notice must be specific enough to give a Chicago bankruptcy lawyer an opportunity to block adverse action at a subsequent hearing. Only a lawyer can stand up for debtors in this way. So, if you count on your security clearance and you need financial protection, you really need a Chicago bankruptcy lawyer.

Possible Concerns

The DoD has some legitimate concerns in this area. In the immortal words of Texas poet Jimmy LaFave, desperate men do desperate things. Severe financial problems can prompt people to sell secrets. These cases are rare, but they have happened before and they will happen again. Specific concerns, and how they relate to bankruptcy, include:

• Unwillingness or Inability to Pay Debts: Pretty much no debtors are unwilling to pay their debts. In fact, they often reaffirm certain debts, especially secured debts, like car and house payments. Furthermore, Chapter 13 debtors are able to pay their debts. They just aren’t able to pay them on the one-sided terms that creditors usually offer.
• History of Unmet Obligations: Most people file bankruptcy as a last resort. So, they are normally very far behind on a number of accounts. However, this delinquency is usually related to one severe hardship, like a job loss or divorce, that had a financial ripple effect.
• Illegal Activities: Most bankruptcy debtors don’t have problems because of “ embezzlement, employee theft, check fraud, income tax evasion, expense account fraud, filing deceptive loan statements, and other intentional financial breaches of trust,” or “gambling, drug abuse, alcoholism, or other areas of security concern.” Most bankruptcy debtors just need a fresh start.

At the aforementioned hearing, the DoD must not only prove the security clearance holder has financial problems. The DoD must prove these financial problems create security concerns. Based on the above discussion, that’s difficult to show.

Acceptable Extenuating Circumstances

When excessive debt is a problem, there are almost always two sides to the story. The DoD recognizes this, and therefore some specific defenses to adverse action are available.

• Effort to Repay or “Otherwise Resolve” Debt: Bankruptcy usually looks better on a credit report than repossession, foreclosure, and other entries which indicate the debtor quit. The DoD has the same attitude. If debtors file bankruptcy, especially Chapter 13 bankruptcy, they at least did something.
• Evidence of Turnaround: Similarly, just by filing bankruptcy and undergoing required debt counseling, there are clear indications that the debtor “has received or is receiving counseling for the problem and there are clear indications that the problem is being resolved or is under control.”
• Lack of Control: This bullet point is often the silver bullet for Chicago bankruptcy lawyers. Financial storms, like loss of employment, business downturn, divorce, unexpected medical emergency, and the others listed in Guideline F of DoD Directive 5220.06, usually prompt bankruptcy filings.

Briefly, Chapter 7 bankruptcy eliminates most unsecured debts in only a few months. Chapter 13 gives distressed debtors up to five years to catch up on past-due mortgage payments and other secured obligations. 

Work with Dedicated Cook County Lawyers

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.