Will I Lose My Security Clearance if I File Bankruptcy?

Many federal employees ask, “Will I lose my security clearance if I file bankruptcy?”

The unsatisfying answer is, “It depends.”

The federal government makes security clearance determinations on a case-by-case basis. The Department of Defense has published Guidelines for Determining Eligibility For Access to Classified Information which sheds light on these individual determinations. Within this publication is Guideline F: Financial Considerations, which lists several “conditions that could raise a security concern,” including:

• inability or unwillingness to satisfy debts;
• frivolous or irresponsible spending;
• deceptive or illegal financial practices;
• failure to file tax returns;
• unexplained affluence; and
• compulsive gambling.

 
By itself bankruptcy is not a condition that could raise a safety concern and is not listed amongst the factors for which one can be denied a security clearance. In fact, the federal law prohibits a governmental entity from discriminating against a bankruptcy debtor, and Section 522 specifically states that the government 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.”

The “depends” part comes from the conditions that led to the bankruptcy. For instance, a pattern of ignoring your debts and changing your telephone number or address to avoid creditors may seriously impact your security clearance, whether or not you file bankruptcy! Everyone makes mistakes, which is an important reason why Congress enacted the federal bankruptcy laws in the first place. The best advice is to act responsibly and honestly if you have incurred more debt than you can handle.

Guideline F  also addresses several “conditions that could mitigate security concerns,” including:

• behavior from long in the  past, or infrequent behavior;
• conditions beyond the applicant’s control, such as medical emergency, business downturn, or divorce; and
• good-faith effort to repay or otherwise resolve debts.

 
Filing bankruptcy, especially a Chapter 13 bankruptcy, may be a responsible way to legally deal with your financial difficulties. In fact, the United States Air Force Academy Legal Office says this about bankruptcy:

“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.”