Will Bankruptcy Affect My Security Clearance?

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.

Erin Shank, Texas Bankruptcy Lawyer

Erin Shank has been practicing exclusively bankruptcy law in Texas for over 30 years. She served as the President of the Central Texas Bankruptcy Bar Association for 5 years. She is also the State Chair for the Western District of Texas for the National Association of Consumer Bankruptcy Attorneys. She teaches other attorneys advanced bankruptcy law matters several times each year at national, international, state and local bar association continuing education seminars. I taught a course entitled “Debtors’ Rights and Creditors’ Remedies” as an adjunct law professor at Baylor Law School for over ten years.

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