Will Bankruptcy Ruin My Security Clearance?

Many Indiana families depend on government paychecks, either directly or indirectly. Like most other people, these families typically live hand to mouth. Even a temporary income disruption, like the 2018-19 partial government shutdown, can be the difference between treading water and going under the financial waves.

Eventually, many of these families may consider filing for bankruptcy. Chapter 13 stops creditor adverse action, like home foreclosure, and gives debtors time they need to catch up on past-due bills. As a bonus, Chapter 13 also eliminates many unsecured debts, like credit cards and medical bills.

Contrary to popular myth, bankruptcy does not automatically affect your security clearance status. It is illegal to act against workers just because they filed bankruptcy. Additionally, in many cases, bankruptcy could actually preserve your security clearance. Guideline F of DoD Directive 5220.6 covers most of these issues.

Possible Disqualifying Conditions

People who owe lots of money often get quite desperate. In their desperation, they do not think clearly and sometimes turn to illegal actions. That action could even include selling secret information. Some specifics include:

• – History of Unmet Obligations: Guideline F does not define this phrase, but it implies that the debtor had a longstanding problem paying the bills. That’s normally not the case in consumer bankruptcy filings. Typically, an event like a job loss had a snowball effect.
• – Deceptive Practices: Most consumer bankruptcy cases do not involve “embezzlement, employee theft, check fraud, income tax evasion, expense account fraud, filing deceptive loan statements, and other intentional financial breaches of trust.” Bankruptcy would probably not help in these situations anyway, because these kinds of debts are usually nondischargeable.
• – Security-Related Financial Problems: Other parts of Directive 5220.6 concern substance abuse, gambling problems, and other areas of security concern. If these areas are related to your financial problems, there may be trouble. But as outlined below, most people file bankruptcy for reasons totally unrelated to these things.

Before the DoD or other issuing agency takes action against your security clearance, the agency must provide notice of the charges and give you an opportunity to be heard.

Some Mitigating Circumstances

At this hearing, you or your attorney can bring up a number of mitigating conditions. Pretty much anything may qualify, but it’s best to focus on the ones listed in the directive. Some important ones include:

• – Isolated Incident: As mentioned, one-off incidents are not much of a concern. Typically, that’s the case when people file bankruptcy. A one-time storm forced them under the waves.
• – Debt Counselling: If the person received debt counselling, the financial problems are not as serious, as far as the DoD is concerned. All bankruptcy debtors must complete at least two debt counselling classes.
• – Lack of Control: The examples listed in the Directive (“loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation”) basically mirror the list of reasons people file bankruptcy. Chances are, your bankruptcy is on this list as well.
• – Effort to Control Debt: This area is where bankruptcy may make the biggest difference. Items like collections referrals and charge-offs indicate that the debtor simply gave up. Filing Chapter 13 bankruptcy, on the other hand, is clearly “a good-faith effort to repay overdue creditors or otherwise resolve debts.”

If the issuing agency does take action against your security clearance, this action could mean revoking it, or more likely, downgrading it.

Count on Dedicated Lawyers

Chapter 13 might save your security clearance. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Resource:

foxbusiness.com/economy/partial-government-shutdown-could-hurt-january-jobs-numbers-kevin-hassett

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