Would Filing Bankruptcy Void my Security Clearance?

Absolutely not. Bankruptcy discrimination is illegal. Filing bankruptcy has no adverse effect on any employment relationship.

However, the circumstances surrounding the bankruptcy filing are another story. The Department of Defense, or any other employer, may generally take adverse action, or refuse to hire someone, based on financial circumstances. That’s especially true with regard to a security clearance, because uncontrolled financial difficulties are a legitimate cause for concern.

Many people do not realize that filing bankruptcy, especially a Chapter 13, may be the best way to preserve your security clearance. Bankruptcy allows people to take control of their financial dilemmas, and that control makes you a better security risk in this context.

Specific Concerns

DoD Directive 5220.06 states that people with uncontrolled financial problems might sell secrets to raise money. This overall concern rarely applies to people who file bankruptcy, a fact which is reflected in the specific concerns:

• – Linkage: Sometimes, alcohol abuse, gambling, or other areas of security concern cause financial problems. But generally, the financial storms of life, like job loss and extended illness, cause bankruptcy filings.
• – Inability or Unwillingness to Satisfy Debts: Chapter 13 filers are both able and willing to satisfy their debts. They make a debt consolidation payment each month which, over the life of the bankruptcy, will eliminate secured debt arrearages, like past-due mortgage payments.
• – Illegal or Deceptive Practices: Bankruptcy hardly ever involves “embezzlement, employee theft, check fraud, income tax evasion, expense account fraud, filing deceptive loan statements, and other intentional financial breaches of trust.”

Guideline F also states that people with a history of unmet obligations may be a security risk. Typically, that’s not true in bankruptcy filings. Generally, a financial storm created a snowball effect which wrecked the debtor’s finances.

Mitigating Circumstances

The areas of concern hardly ever involve bankruptcy. The mitigating circumstances, on the other hand, almost always involve bankruptcy. That’s why CHapter 13 could prevent adverse action against your security clearance. Some mitigating circumstances include:

• – Isolated Incident: As mentioned, most people file bankruptcy because of an isolated incident, and not because they are financially irresponsible or engage in criminal behavior.
• – Lack of Control: The examples in Section E2.A6.1.3.3 (“loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation”) practically mirror the lists of why people file bankruptcy.
• – Good Faith Effort to Resolve Indebtedness: If filing bankruptcy does not constitute a good-faith effort to resolve debt issues, nothing does.
• – Indications of Control: This may be the big one. As mentioned, bankruptcy puts people in control of their debt problems. People who are in control rarely resort to desperate measures to raise money, especially when they have no history of doing so.

Adverse action against a security clearance could include denial, refusal to renew, or downgrade. Generally, employers cannot take such action without notice and opportunity to be heard. Your bankruptcy attorney may be able to represent you at this hearing, if necessary.

Count on Dedicated Lawyers

Bankruptcy may preserve your security clearance. For a free consultation with an experienced Chicago Chapter 13 bankruptcy attorney, contact the Bentz Holguin Law Firm, LLC. The sooner you call us, the sooner we start working for you.

Resource:

law.cornell.edu/uscode/text/11/525

/can-bankruptcy-save-my-car-2/