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Can Bankruptcy Affect Your Security Clearance?


Yes, bankruptcy can affect your security clearance, but usually in a positive way. The financial problems that usually precede bankruptcy could affect your security clearance in a negative way, under DoD Directive 5220.6. This negative effect could be a security clearance downgrade, a suspension, or even a revocation. As outlined below, people who file bankruptcy usually avoid such negative consequences.

Even if the DoD tries to take adverse action against bankruptcy debtors, these government bureaucrats may not do so unilaterally. Instead, the security clearance holder is entitled to notice and hearing. A Chicago bankruptcy lawyer stands up for security clearance holders during this process. Furthermore, lawyers give solid legal advice that people can count on during uncertain times.

Areas of Concern

In the past, people with severe financial problems have sold state secrets to raise money. People will do so again in the future. So, the DoD is right to be concerned.

However, the concerns must be put into context. Guideline F, the financial problems section, is between personal conduct (mostly associating with unsavory individuals) and alcohol consumption (mostly drinking beer on the weekends). So, the DoD is concerned, but not alarmed, if a security clearance holder has financial problems. Specific concerns include:

  • Pattern of Unpaid Debts: Some bankruptcy debtors are unable to pay multiple debts. Most, however, have issues in a single area, such as high medical bills.
  • Unwillingness to Pay: Most people want to pay their bills. That’s one reason so many people hesitate to file bankruptcy. So, a bankruptcy filing doesn’t necessarily indicate an unwillingness to pay debts.
  • Illegal Conduct: Very few bankruptcy debtors have issues with gambling debts, tax evasion, embezzlement, or other such illegal activities.

Above all, the DoD is concerned that financial problems will overwhelm security clearance holders and force them to take desperate actions. Bankruptcy’s Automatic Stay prevents creditor adverse actions, like repossession and foreclosure, taking the pressure off and reducing the chances of a desperate action.

Mitigating Circumstances

The areas of concern don’t align with bankruptcy filers. Even better, the mitigating circumstances greatly favor bankruptcy filers. These mitigating circumstances include:

  • Not Recent Behavior: To many people, filing bankruptcy is a last resort. So, by the time they partner with a Chicago bankruptcy lawyer, they’ve usually spent months or years trying to resolve the situation on their own.
  • Action Taken: Overall, filing bankruptcy usually looks better on credit history reports than repeated late payments and charge-offs. People who file bankruptcy at least did something. The DoD especially looks kindly on actions that include debt counseling, which is a bankruptcy requirement.
  • Lack of Control: Self-inflicted financial wounds are a very bad sign, as they indicate the person has poor judgment. However, if “loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation” caused the problem, that’s different. Most people file bankruptcy for one of these reasons.

Above all, the DoD rarely takes adverse action if “the individual initiated a good-faith effort to repay overdue creditors or otherwise resolve debts.” We couldn’t think of a better description of bankruptcy, especially Chapter 13 bankruptcy.

 Rely on a Diligent Cook County Lawyer

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. We routinely handle matters throughout the Prairie State.



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