Will I Lose My Security Clearance If I File Bankruptcy?

 Posted on March 03, 2015 in Chapter 7 bankruptcy

Workers at Lackland Air Force Base, Fort Sam Houston, and Randolph AFB, as well as the defense contractors in and around the Alamo City, sometimes hesitate to file bankruptcy because they are afraid they may lose their security clearances. First of all, it is never a good idea to let fear dictate your financial and legal decisions. Second, and more importantly, a voluntary Chapter 7 or Chapter 13 petition does not mean the end of your security clearance, according to both federal law and Department of Defense regulations.

Federal Law

Bankruptcy exists to give people a fresh financial start, and not to punish them for “mistakes” they may have made in the past or to pile misfortune on top of misfortune. So, under 11 U.S.C. 525, it is illegal for any governmental or private employer to make an adverse employment decision on the basis of a bankruptcy filing. In other words, your boss cannot refuse to hire you, refuse to give you a promotion, or fire you simply because you were a debtor in a voluntary bankruptcy.

Section 525 also states that a student cannot be denied a loan or grant solely on the basis of a bankruptcy filing.

DoD Rules

Directive 5220.6 essentially determines who receives a security clearance. There are a number of factors to consider – loyalty to the United States, ties to a foreign country or government, sexual behavior, personal conduct, financial considerations, alcohol and drug use, emotional problems, criminal history, prior security violations, outside activities, and misuse of IT devices. Negative information in any one area, or even in several areas, does not necessarily disqualify a person. For example, Jane may have Russian in-laws, attend AA meetings, and be bipolar, but she may still be eligible for a security clearance.

Guideline F addresses financial considerations. There is a valid concern – persons with financial problems may be tempted to sell secrets to generate funds. But the Guideline specifically lists some mitigating factors, including:

• Counseling: Debt counseling and “clear indications” that the matter is under control are key mitigating factors. All Chapter 7 debtors receive at least two debt counseling sessions and have no more unsecured debt after they receive a discharge.
• Lack of Control: Many people file bankruptcy due to circumstances that were either totally or mostly beyond their control, such as “a loss of employment, a business downturn, an unexpected medical emergency, or a death, divorce or separation.” Guideline F specifically names these scenarios as mitigating circumstances.
• Good Faith Effort to “Resolve” Debt: Guideline F specifies “resolve” in addition to “repay” debt. If you have more debts than you can pay, bankruptcy is the best way to resolve the situation.

The bottom line is that Directive 5220.6 punishes financial irresponsibility, which is often unrelated to a bankruptcy filing. Furthermore, if you are revoked or denied, you have the opportunity to request a hearing and make the hearing officer aware of these applicable mitigating circumstances.

If you need to file bankruptcy to get out of debt or save your home,c6ntact an experienced San Antonio bankruptcy attorney. Call the Law Offices of Chance M. McGhee at 210-342-3400 today for a free consultation.