Since my law firm represents soldiers, civilian contractors and other military personnel especially in our Killeen office, we are frequently asked if filing for bankruptcy will affect a security clearance. I found this discussion on the United States Air Force Academy website.
“The status of your security clearance can be affected, but it is not automatic. The outcome depends on the circumstances that led up to the bankruptcy and a number of other factors, such as your job performance and relationship with your chain of command. The security section will weigh whether the bankruptcy was caused primarily by an unexpected event, such as medical bills following a serious accident, or by financial irresponsibility. The security section may also consider the recommendations and comments of your chain of command and co-workers. This is an issue that can be argued both ways, so as a practical matter your security clearance probably should not be a significant factor in making your decision about whether to file bankruptcy. The amount of your unpaid debts, by itself, may jeopardize your clearance, even if you don’t file bankruptcy. In that sense, not filing for bankruptcy may make you more of a security risk due to the size of your outstanding debts. By the same token, using a government-approved means of dealing with your debts may actually be viewed as an indication of financial responsibility. Eliminating your debts through bankruptcy may make you less of a security risk. There is no hard and fast answer there, with one exception: it never hurts to have a good reputation with your co-workers and your chain of command.”
I would also add that Section 525 of the Bankruptcy Code states that:
“…(A) governmental unit may not deny, revoke, suspend or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under the “Bankruptcy Code”… solely because such bankruptcy or debtor is or has been a debtor under the “Bankruptcy Code.”
Reviewing both of these sections, I conclude that using a law that was established in the U.S. Constitution to deal with one’s financial problems is a responsible and legal way of handling one’s debt. Not dealing with a financial problem is irresponsible.
UPDATE:
We recently represented a soldier who had such severe debt problems that his military clearance privileges had been revoked. We filed a Chapter 7 bankruptcy for him and his wife. We made sure that all the negative comments posted on their credit reports with Experian, Trans Union and Equifax credit bureaus were listed in this bankruptcy. All their debts were discharged under federal law. After they received their bankruptcy discharge, we wrote his commanding officer and explained the situation that led to his debt problems and explained that his debts were now legally and fully discharged. His security clearance was reinstated. He was so very happy! We can not guarantee this result in every case because it is ultimately up to the commanding officer. We are proud to represent our military and got the extra mile to help reinstate security clearances for our soldiers and civilian contractors.
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Great info explaining a sometimes-mysterious topic.
Among my military clients, I had one whose CO pulled him aside and TOLD him to go file a bankruptcy. His credit score had become so bad that filing a chapter 7 and getting rid of all the debts was just about the only thing that would help him KEEP his clearance. Not all CO’s are going to take that position of course, but filing bankruptcy doesn’t automatically mean trouble.
Good post, Erin. I have dealt with this, too, in my practice and have found the same thing. The worst thing a person can do is nothing. I’ve dealt with several folks with security clearances lately. Typically, their superiors just want the debt done. As long as the “debt tumor” remains, it’s a problem. Once it’s gone, it’s typically not. That makes sense because the person is no longer under pressure from debt and, consequently, less likely to reveal secrets in exchange for money. Here’s my post:
http://www.scbankruptcyattorney.com/blog/will-bankruptcy-affect-my-security-clearance-2/2010/02