Will Filing Bankruptcy Ruin My Security Clearance?
In the post-9/11 world, the Department of Defense scrutinizes security clearance applications more closely than ever. The same thing applies to renewal requests. According to DoD Directive 5220.6, financial problems can lead to adverse action. That action could be a denial or a reduction in clearance level. So, many people in Indiana hesitate to file bankruptcy even if the clearly need to do so. They are afraid that such a filing might make a bad situation worse.
However, simply filing for bankruptcy does not trigger this scrutiny. Such automatic adverse action is illegal under federal law, because bankruptcy filing discrimination is illegal. So, the DoD will take a close look at the concerns and mitigations in Guideline F of Directive 5220.6. A close examination reveals that bankruptcy might have the opposite effect. This move might help you overcome financial problems and keep your security clearance.
Possible Disqualifying Conditions
The DoD has a legitimate concern in this area. People who are facing severe financial problems and need to raise money quickly might turn to illegal activity. Some specific concerns, and how they relate to an Indiana bankruptcy filing, include:
- – Unwillingness or Inability to Pay Debts: According to subpart (b), the “inability” prong means “frivolous or irresponsible” overspending. Some people do file bankruptcy because of reckless spending, but most file due to circumstances beyond their control. Furthermore, most bankruptcy debtors are not wholly unwilling to pay their debts. That’s especially true in Chapter 13
- – Deceptive Financial Practices: Almost no consumer files bankruptcy because of “embezzlement, employee theft, check fraud, income tax evasion, expense account fraud, filing deceptive loan statements, and other intentional financial breaches of trust.” Such debts may not be dischargeable anyway.
- – History of Debt: Typically, people file bankruptcy because of a financial emergency which has a snowball effect. Such a situation can hardly be considered “consistent spending beyond one’s means.”
- – Crossover Issues: A handful of people get into financial trouble because of gambling, substance abuse, “or other issues of security concern.” Once again, this concern is hardly ever present in Indiana bankruptcy cases.
The bottom line is “an individual’s reliability, trustworthiness and ability to protect classified information.” This overall concern is simply not present in most bankruptcy cases. So, the debtor’s financial problems are arguably not the DoD’s concern. Furthermore, these conditions are not automatically disqualifying. They are just red flags.
Possible Mitigating Circumstances
The concerns arguably have little or nothing to do with bankruptcy. The mitigating circumstances, on the other hand, might have everything to do with bankruptcy.
- – The Context: As mentioned, people usually file bankruptcy because of an unanticipated financial emergency. Indeed, there is usually substantial evidence that “it is unlikely to recur and does not cast doubt on the individual’s current reliability, trustworthiness, or good judgment.”
- – Lack of Control: The listed examples for out-of-control financial problems (“loss of employment, a business downturn, unplanned medical emergency, or a death, divorce or separation”) almost literally mirror the lists of why people file bankruptcy.
- – Good Faith Effort: Subsection (d) does not require debt payment. Instead, it only requires “a good-faith effort to repay overdue creditors or otherwise resolve debts.” That is exactly what bankruptcy does.
A qualified bankruptcy attorney does more than file paperwork. Your attorney can also advocate for you in any bankruptcy-related proceedings, including adverse action against a security clearance.
Connect with Experienced Lawyers
Bankruptcy may save your security clearance. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters in both Illinois and Indiana.
