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Chicago Bankruptcy Lawyer > Blog > Chapter 13 Bankruptcy > What Happens To My Security Clearance If I File Bankruptcy?

What Happens To My Security Clearance If I File Bankruptcy?


Strictly speaking, nothing happens to your security clearance when you file bankruptcy. It’s illegal to discriminate against people who file bankruptcy. The Prairie State has one of the country’s strongest anti-discrimination laws in this area. However, that filing can, and usually does, trigger the notice and hearing provision in most security clearance agreements. If a hearing officer finds that the person’s financial problems create a security risk, adverse action, including clearance revocation, could result.

However, that’s a very big “if,” particularly if the clearance-holder filed Chapter 13 bankruptcy. For this reason, if security clearance preservation is a top priority, many Chicago Chapter 13 bankruptcy lawyers steer these individuals away from Chapter 7 liquidation bankruptcies. Chapter 13, which is also known as the wage-earner plan, allows petitioners to repay their debts over time while they are under the protection of a federal bankruptcy judge.

Security Concerns

Frequently, desperate times call for desperate measures. Understandably, the DoD is concerned that people with severe financial problems might sell secrets to raise money. Such instances are rare. But they have happened before and they will happen again.

However, the specific concerns listed in Guideline F of DoD Directive 5220.06, the relevant document in this area, have little to do with bankruptcy.

  • Links to Areas of Security Concern: The listed examples are “gambling, drug abuse, [and] alcoholism.” Such vices almost never prompt bankruptcy filings. Most bankruptcy petitioners are good people who encountered bad circumstances.
  • Unwillingness or Inability to Satisfy Debts: People who file Chapter 13 are willing and able to pay their debts. They simply cannot pay them under the terms that creditors dictate.
  • Deceptive Financial Practices: People who have issues with “embezzlement, employee theft, check fraud, income tax evasion, expense account fraud, filing deceptive loan statements, and other intentional financial breaches of trust” should not file bankruptcy. These debts are fraudulent and nondischargeable.
  • History of Unmet Obligations: Generally, people who file bankruptcy fall behind on bills in one area, and the effect snowballs into different areas. Since there is a common cause, that’s not the same thing as history of unmet obligations.

A Chicago bankruptcy lawyer can urge these points during a hearing to determine adverse action against a security clearance. By law, the issuing entity or agency must hold such a hearing.

Mitigating Circumstances

The areas of concern have little to do with a bankruptcy filing. On the other hand, the mitigating circumstances often have everything to do with a bankruptcy filing, especially a Chapter 13:

  • Isolated Incident: As mentioned, most bankruptcy filers have problems in one area which snowballs to other areas. For example, due to a loss of income, the Smiths might stop making credit card payments so they can make their mortgage payments.
  • Not Recent Behavior: In most cases, filing bankruptcy is a last resort. Most people get second jobs, attend debt management seminars, and try to arrange payment plans before they even think about filing bankruptcy. So, there’s usually at least several months between the triggering incident and the bankruptcy filing.
  • Lack of Control: The list of examples, “loss of employment, a business downturn,

unexpected medical emergency, or a death, divorce or separation,” practically mirrors the list of reasons people file bankruptcy.

Other possible mitigating circumstances include “clear indications that the problem is being resolved or is under control” and the individual made “a good-faith effort to repay overdue creditors or otherwise resolve debts.” Once again, bankruptcy covers both these things.

Rely on Dedicated Cook County Lawyers

Filing bankruptcy may be the best way to keep your security clearance if you have financial problems. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Virtual, home, and after-hours visits are available.

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