Bankruptcy and Your Security Clearance

Published Saturday, December 12, 2009 @ 12:07 pm

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Are you putting off filing for bankruptcy because you fear it will cause you to lose your security clearance? Or do you work or study in a field with a lot of defense work, and you fear a bankruptcy will keep you from getting a job? In fact, filing bankruptcy could be the best thing you could do to get or keep your security clearance.

Financial considerations are an important part of the security clearance process, and nearly 50% of the denials of security clearances result from people failing this part of the process. The adjudicator processing the clearance is most concerned with large amounts of unpaid debt that might lead you to sell state secrets for money. High credit card balances, for example, are much more detrimental than a bankruptcy on your record. A second major concern is personal responsibility. The adjudicator will take into consideration your reason for running up debt – was it a one time, unexpected event, like a medical emergency, that caused your debt, or was it a pattern of irresponsible spending? Not surprisingly, they look less favorably on the irresponsible spending.

Adjudicators also look for a pattern – people who ignore or avoid financial responsibilities may not be responsible enough to safeguard the nation’s secrets. Certain behaviors draw red flags: changing your address without notifying your creditors, for example; failing to take reasonable measures to pay your creditors and reduce your debt; deliberately writing bad checks; or increasing your credit card use just before filing for bankruptcy.

However, adjudicators also consider mitigating factors in deciding whether or not to issue – or cancel – a security clearance, and one of the most important is your response to your debt. Here’s where filing for bankruptcy can really help you out. You’ve faced the amount of money that you owe, and you’ve been completely honest with the court about your assets and liabilities. You no longer have creditors calling you and you no longer have mountains of debt that might tempt you to take desperate measures. It’s even better if you can show you’ve been living within your means and restoring your credit since your bankruptcy.

There’s some anecdotal evidence that suggests that filing a Chapter 13 bankruptcy – where you repay at least some of the debts you owe – may appear more favorable than a Chapter 7, but I haven’t seen anything official about this. The best thing to do is to consult with your bankruptcy attorney on your situation before you file.

The law prohibits both public and private employers from firing you because you filed for bankruptcy. Security clearances don’t come under this law; however, if you lose your clearance, you could lose your job. It’s true that there’s no guarantee that filing for bankruptcy will not affect your clearance, but the general rule seems to be that if you already have a clearance, you’re unlikely to lose it. And if you’re applying for a clearance for the first time, you’re less likely to get it with a lot of unpaid debt than with a clean bankruptcy filing and a new start.

Brought to you by the experienced attorneys at the Law Offices of John T. Orcutt. Call today to set up a free initial debt consultation. 1-800-899-1414.

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