Your Bankruptcy And Your Security Clearance

Workers that are experiencing financial distress while serving at Scott Air Force Base, the Great Lakes Training Center, and Rock Island Arsenal, or while employed by one of the many private firms in Illinois that require a security clearance, may hesitate to file bankruptcy because they believe that such filing will lead to adverse action against their clearances. Yet considering the way the law is written, bankruptcy may be the move that preserves a security clearance.

The Rules at the Department of Defense

Guideline F of DoD Directive 5220.6 covers a wide variety of situations that can lead to adverse action against a security clearance. Rather unsurprisingly, the DoD’s chief concern is addressed in Guideline A: Allegiance to the United States. The DoD will consider adverse action if the clearance-holder has any affiliation with a terrorist group or an organization that is sympathetic with these objectives and methods. Guideline A sets the model, as it discusses the overall concern, specific instances which the DoD considers troubling, and mitigating circumstances.

Financial Concerns

Guideline F addresses both debt problems and unexplained affluence. According to the overall concern, unexplained affluence could have resulted from illegal activity and persons facing debt problems may be under so much pressure that they resort to “illegal acts to generate funds,” which in this case probably means selling state secrets.

Interestingly, “Financial Concerns” are just below “Personal Conduct” and right above “Alcohol Consumption.” In other words, people who have a few beers on the weekends or are less than 100 percent forthcoming on official paperwork are just as much of a security risk as bankruptcy debtors, at least as far as the DoD is concerned.

The Specifics

Nearly all consumer bankruptcies are debt-driven. In this light, the DoD is specifically concerned about:

• – Pattern of Unmet Obligations: Some debtors file bankruptcy because of a pattern of misspending that extends back several years. However, most debtors file bankruptcy because of a one-time traumatic financial event, like a job loss or serious illness, that had a snowball effect.
• – Illegal or Deceptive Practices: This concern is largely inapplicable, as almost no bankruptcy debtors are guilty of “embezzlement, employee theft, check fraud, income tax evasion, expense account fraud, filing deceptive loan statements, and other intentional financial breaches of trust.” Other illegal activity, like “gambling [or] drug abuse,” is rare as well.
• – Unwillingness or Inability to Pay Debts: Most debtors are willing to pay their debts but simply lack the means to do so, at least under the terms the moneylender offers.

Essentially, if the debtor can separate debt problems from possible security concerns, adverse action is unlikely.

The distinction really takes center stage in the next section, which lists possible mitigating factors. Some of them include:

• – Debt Counselling: All bankruptcy debtors undergo at least two rounds of financial counselling while their cases are pending.
• – Lack of Control: The examples that the DoD cites, including job loss, illness, and business downturn, are almost identical to a list of the reasons that people file bankruptcy.
• – Good Faith Effort to Resolve Debt: This mitigating circumstance includes elements of both Chapter 13 (“repay overdue creditors”) and Chapter 7 (“otherwise resolve debts”).

If the DoD does try to either revoke or downgrade a security clearance based on financial problems, the debtor is entitled to notice and hearing.

Rely on Aggressive Lawyers

Chapter 7 or Chapter 13 bankruptcy may be the best way to retain a security clearance. For a confidential consultation with an experienced Chicago bankruptcy lawyer, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.