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Does Bankruptcy Affect Your Security Clearance?


Although most people believe the answer to this question is “yes,” the B-word does not appear in Guideline F of DoD Directive 5220.6, the relevant document in these situations. However, Guideline F does touch on a number of bankruptcy-related matters. It simply says some very unexpected things about the relationship between bankruptcy and a security clearance.

To a Chicago bankruptcy lawyer, adverse action against a security clearance is simply another adversarial proceeding in a Chapter 7 or 13 bankruptcy. Adversarial proceedings are very common in consumer bankruptcies. So, an experienced attorney knows how to handle these matters and successfully resolve them out of court.

Financial Concerns

This priority is rather low. Guideline F is between Guideline E (Personal Conduct, which is basically making poor choices), and Guideline G (Alcohol Abuse). If the DoD revoked the security clearance of anyone who drank a little too much or made a bad choice, no one would be able to hold a security clearance.

Nevertheless, history is full of examples of people who sold state secrets to escape severe financial distress. So, it’s logical that the DoD would be concerned about this area. Specific concerns include:

  • Overlapping Issues: Financial problems related to “gambling, drug abuse, alcoholism, or other issues of security concern” are in a special category. Very few bankruptcies are related to such issues. Instead, divorce, job loss, and other uncontrollable situations force most people to file bankruptcy.
  • Inability or Unwillingness to Pay Debts: Chapter 13 debtors are both able and willing to pay their debts. They just need court-supervised repayment plans that are based on their incomes.
  • Illegal or Deceptive Practices: This bullet point is closely related to the first one. This concern usually doesn’t apply in bankruptcy matters. Very few people file petitions due to “embezzlement, employee theft, check fraud, income tax evasion, expense account fraud, filing deceptive loan statements, and other intentional financial breaches of trust.”

If people ignore these problems, adverse security clearance action is usually both inevitable and successful. Simply filing a petition with a Chicago bankruptcy lawyer, especially a Chapter 13 petition, often short-circuits these concerns.

Mitigating Circumstances

Somewhat similarly, the mitigating circumstances listed in Guideline F are usually associated with a bankruptcy filing.

  • Good-Faith Effort to Resolve Debt: This mitigating factor could apply to both Chapter 7 and Chapter 13 filers. The DoD looks favorably on any attempt to “repay overdue creditors or otherwise resolve debts.” Bankruptcy checks one or both of these boxes.
  • Debt Under Control: The DoD doesn’t care how much the security clearance holder owes, as long as there are “clear indications that the problem is being resolved or is under control.” That phrase sums up the bankruptcy process.
  • Uncontrollable Condition: We mentioned this factor earlier. The DoD often doesn’t care about financial problems if the “conditions that resulted in the behavior were largely beyond the person’s control (e.g., loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation).

Briefly, Chapter 7 eliminates credit card bills and most other unsecured debts in as little as nine months. Chapter 13 gives families up to five years to erase secured debt delinquency, like past-due mortgage payments.

 Count on a Hard-Working 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. The sooner you reach out to us, the sooner we start fighting for you.



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