Thursday, September 8, 2011

Security Clearance and Bankruptcy

Security Clearance and Bankruptcy 

I see this question quite often, "Can I file bankruptcy and keep my security clearance?" so I'm going to address it here.

Whether or not you can file for bankruptcy and keep your security clearance or obtain security clearance after filing bankruptcy in the past depends on the following factors:

  • The type of bankruptcy you filed
  • The type of debt you owed
  • Your financial behavior since the bankruptcy
  • How old you were when you filed for bankruptcy (yes, they look at that)
  • How much you owed when you filed

Why Chapter 13 Looks Better Than Chapter 7 for Those With Security Clearance

You can file and keep your position
In general, filing Chapter 13 bankruptcy reflects better on your responsibility level than filing under Chapter 7 because Chapter 13 bankruptcy requires you to repay your creditors whereas, with few exceptions, Chapter 7 lets you walk away from your debts. Because you're trying to create as responsibile a persona as possible for your periodic security clearance reviews, if you have to file bankruptcy, Chapter 13 is usually the safest route to go to keep your security clearance job.

However, if your debt load is ridiculously high and you qualify for Chapter 7, that doesn't necessarily mean that filing under Chapter 7 will cost you your security clearance. You have to weigh the pros and cons here. Is that job really worth being saddled with all that debt for another 3-5 years? If your debt load is high, you may want to go ahead and take the risk. You can always get another job, but you may not get another chance to have your debt load discharged in its entirety.

Extenuating Circumstances Behind the Bankruptcy

Your reviewers will looks at the extenuating circumstances behind your bankruptcy when making a decision about your ability to keep your security clearance. For example, if you filed for bankruptcy as a result of medical bills that got out of control (and you wouldn't be the first) when a family member fell ill, your reviewer can clearly see that your bankruptcy was not the result of a pattern of irresponsible behavior. An illness in your family, and the medical bills that come with it, isn't something you can change (military families have the great, all-encompassing Tricare so this scenario probably doesn't apply, but still...).

If, however, you filed bankruptcy as a result of credit card debts, high-interest loans and other financial products you applied for and weren't able to keep up with, the security reviewer will see that you bit off more than you could chew financially and will take that into consideration when determining whether or not to extend or terminate your security clearance.

Post-Bankruptcy Financial Behavior Affects Security Clearance

Yet another factor your security review takes into consideration is your financial behavior since the bankruptcy. Your reviewer wants to see that filing for bankruptcy taught you an important lesson about managing your finances properly. If you immediately apply for and max out three or four new credit cards after the bankruptcy discharge, that sends the message that you haven't learned anything from your struggles and irresponsibily is the precursor to treason *cue scary music here*

Take it easy with the credit cards post-bankruptcy

Your Relationship With Your Chain of Command Makes a Big Difference

I know each military branch has a different document outlining security clearance regulations and most say the same thing in a different way. What I found very interesting was that the Air Force Academy website emphasizes again and again that having a good relationship with your chain of command has a significant impact on whether filing for bankruptcy will result in your security clearance being revoked.

While that may seem every different shade of wrong, its absolutely true. Your commanding officer putting in a good word for you may be all it takes for a security reviewer to skim your file and ignore a bankruptcy. You see, the reviewer has to make a decision: Does the bankruptcy indicate you were irresponsible by getting in over your head with your creditors, or does it denote responsibly by demonstrating that you're trying to resolve your debt problems rather than ignoring them? Your commanding officer's opinion of you can make all the difference in this case.

Sometimes, Bankruptcy is Best

Filing for bankruptcy won't automatically cost you your security clearance but, if you don't get your debts under control, sooner or later those debts will.

As a rule, bankruptcy makes me cringe. The vast majority of the time the person could have gotten out of the situation another way but panicked and ran to a bankruptcy attorney who did the whole, "Stop the phones! I can save you!" routine and BOOM! a bankruptcy was slapped on the person's credit report. Sure, the credit bureaus have to remove that bankruptcy eventually, but you can't erase the fact that it happened. You filed. Its a public record. You'll be legally required to declare it on employment and loan applications, if asked, for the rest of your life.

In the case of those with security clearance, however, bankruptcy can serve as a shield standing between them and their creditors – helping them keep their security clearance and their jobs.

Related Posts:

How Collections Affect Security Clearance Jobs

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