Will I Lose My Security Clearance If I Declare Bankruptcy?

Of all the questions and concerns we receive about this form of debt relief, concerns over a security clearance may be the most common one. In many cases, a security clearance is akin to a professional license. Losing it could mean losing one’s livelihood as well.

According to DoD Directive 5220.6, financial problems could cause a person to lose a security clearance. At the very least, government bureaucrats could make life difficult and perhaps downgrade a person’s security clearance. But these actions apply to financial problems in general, and not to bankruptcy in particular. In fact, it is illegal for any person or entity, including the Department of Defense, to take adverse action based solely on a bankruptcy filing.

What are some of the issues involved, and what is the interplay between bankruptcy and Guideline F of the aforementioned Directive?

Financial Concerns in Illinois

In 2006, the DoD made some changes to Directive 5220.6. For the most part, these changes are very favorable to people who have filed bankruptcy. So, if you were on the fence before, it may be time to get off that fence.

The general principle remains the same. The government is worried that people who are under financial duress may resort to selling secrets to raise money. Some specific concerns include:

Frivolous Spending: Some people do file bankruptcy because they spent recklessly on unnecessary luxuries. But these filings are rare. Most people file bankruptcy because they did not have the financial resources to cope with unexpected medical bills or other such expenses. That situation disrupted the delicate balance between income and expenses. A related concern, which is “consistent spending beyond one’s means,” is rarer still.
Fraudulent Spending: Directive 5220.6 calls out situations like debt related to fraudulent, reckless, or illegal activity. Such debts are hardly ever involved in Illinois bankruptcies. This procedure would not help these people, as these debts are usually not dischargeable.
History of Unmet Obligations: Most Illinois bankruptcy filers do not consistently ignore debts. Instead, a financial crisis made it impossible for them to satisfy debts for a short time. Bankruptcy is the cure for this disease and not the cause of it.

The 2006 changes placed a lot more emphasis on illegal and fraudulent practices, and that’s good news for bankruptcy filers. As mentioned, these issues rarely apply in Chapter 7s or Chapter 13s.

Mitigating Circumstances in Chicago

There is more good news for bankruptcy filers in the next section. In fact, given the listed mitigating circumstances, a bankruptcy filing could actually save your security clearance.

– Nature of the Problem: If the money problems were just money problems and unrelated to the person’s “current reliability, trustworthiness, or good judgment,” the DoD is unlikely to take adverse action.
– Debt Counselling: All Illinois bankruptcy filers must undergo extensive debt and budgeting counselling. Some people consider such efforts to be a burden, but the DoD considers them to be evidence of rehabilitation.
– Lack of Control: The listed examples (“loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation”) almost exactly mirror the lists of the reasons why people file bankruptcy in Illinois.

Other mitigating circumstances include a good faith effort to resolve the situation and “clear indications that the problem is being resolved.” These phrases are basically synonyms for filing bankruptcy in Illinois.

Contact Experienced Lawyers

Bankruptcy usually does not threaten your security clearance, and it may be the best way to preserve it. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle cases in both Illinois and Indiana.

Resource:

http://ogc.osd.mil/doha/DoD_Directive_5220_6.pdf