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Security Clearance and Bankruptcy

Are you overwhelmed by debt but scared to file bankruptcy because of fear that you might lose your security clearance? The reality is that filing bankruptcy might be the best thing you can do for your security clearance. Who is more likely to sell state secrets for money or accept a bribe--the person with large amounts of unpaid debt or the person who wiped out their debt by filing bankruptcy? The reality is that high credit card balances are more likely to hurt your record than a bankruptcy. Filing bankruptcy won't, by itself, affect your security clearance. However, the circumstances surrounding your decision might. If you file bankruptcy every few years to wipe out your excessive credit cards, your security clearance could be affected, not by the bankruptcies per se, but due to your continued history of poor judgment with regards to money. On the other hand, if you are transferred and your home is going to foreclosure, filing bankruptcy may be a smart decision to avoid tax consequences and possible lawsuits due to the foreclosure. In other words, each case is looked at individually and losing your security clearance due to filing bankruptcy is not a guarantee. In fact, it rarely happens. As a bankruptcy attorney near Ft. Hood and Killeen, I have filed bankruptcy for many Ft. Hood soldiers, civil employees, and contractors who have retained their security clearance. Many of them asked for letters to their commanding officers explaining that they are filing bankruptcy. They want these letters to demonstrate that they are dealing with the problem to help their security clearance. They want to show their commanding officers that they are not sticking their heads in the sand. It is important to show that you are dealing with your debts before losing your security clearance, because, once you have lost it, it may be difficult to get it back and even filing bankruptcy may not help you. I know of one case where the individual had already lost his security clearance due to excessive debt. He attempted to file bankruptcy to regain his security clearance and was denied. He did not lose his security clearance due to the bankruptcy. He lost it because he had excessive debt and was not dealing with the problem. Maybe that is the lesson. It is better to deal with your debt problem to reduce the likelihood that you are a security risk. Even various branches of the military have stated that filing bankruptcy does not automatically mean you will lose your security clearance and might even help it. The Air Force Academy's website specially addresses security clearance. See http://www.usafa.edu/superintendent/ja/bankruptcy.cfm?catname=JA.

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.

In 2009, the U.S. Army posted on their website that financial problems need not affect security clearance. See http://www.army.mil/article/24053/financial-problems-or-ptsd-need-not-affect-security-clearance/. The article specifically states "[B]ankruptcy will not automatically prevent obtaining a security clearance. There are many other conditions surrounding financial hardships that often mitigate security concerns . . . [and] 98 percent of cases received by the [Army Central Personnel Security Clearance Facility] which involve financial issues were granted a security clearance. This trend has been consistent since 2005." The Army goes on to state that soldiers should be honest with their chain of command about their financial struggles and soldiers "need to know that their chain of command, fellow Soldiers and coworkers will support their decision to seek the proper help for ... financial concerns". If the only reason you are waiting to file bankruptcy is a fear of losing your security clearance, then call 254-633-2876 or email us at info@TheKehlLawFirm.com today for a FREE, no-obligation consultation to explore your options with experienced staff. Experience has shown that sticking your head in the sand may be worse than facing the problem head on.

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