Bankruptcy

How Will Bankruptcy Affect My Security Clearance?

By Carron Nicks, Attorney
Filing for bankruptcy won't rob you of a security clearance and could help mitigate financial factors that would stand in your way.

While there are no guarantees, in most instances, bankruptcy won’t prevent you from getting or keeping a security clearance. In fact, many organizations look at filing for bankruptcy as a responsible way to address other troubling financial issues, so it might make it easier for you to qualify.

Prohibition Against Bankruptcy Discrimination

It’s understandable to worry about the ways that filing for bankruptcy might negatively impact your life. Bankruptcy can affect your ability to finance a car loan, get insurance, or rent an apartment. So it’s only natural to worry whether you’ll be able to get or maintain a security clearance. In this situation, however, there are several reasons why bankruptcy is less of a factor than you might think. Bankruptcy Code section 525 contains a provision that prohibits the government from discriminating against hiring you solely because you filed a bankruptcy case.

Filing Bankruptcy Might Help Your Chances of Getting a Security Clearance

Most bankruptcies occur because the filer suffered financial strain due to high medical bills, divorce, or unemployment. Having experienced one or more of these probably won’t have much effect on your security clearance because the investigating organization will likely view such circumstances as being out of your control.

On the other hand, your failure to address the financial effects could jeopardize your position if it reflects a cavalier attitude toward your obligations. The concern is that being in debt will make you vulnerable to outside influences, lead to rash actions, or even inspire you to engage in criminal activity. Filing for bankruptcy can remove the intense pressure and make it less likely that you’ll be susceptible to behavior that could jeopardize you personally or affect your ability to do your job.

Security Clearance Factors

The U.S. Department of Defense issues the majority of federal government security clearances after completing an individualized investigation that probes into many areas of your life. Investigators will delve into factors that might affect your allegiance to the United States and dealings with foreign powers, and will likely include gathering information about your:

  • sexual history
  • mental wellbeing
  • drug and alcohol use
  • criminal history
  • misuse of IT devices
  • financial circumstances, and
  • other behavior and influences.

So, in reality, it’s not the bankruptcy itself that would derail you. The circumstances that led up to the bankruptcy filing will be much more of an issue. The government is concerned about anything that will influence you to make unwise decisions or make you vulnerable to espionage and blackmail. Things that reflect your character will also have a bearing on your fitness for the security clearance.

That’s not to say that filing for bankruptcy will resolve everything. Your financial history can play a significant role in the investigation, too. You can expect the government to probe for traits that might lead to continued financial problems, such as:

  • failing to pay your bills as they come due
  • consistently living above your means
  • excessive gambling
  • drug or alcohol use
  • illegal acts (especially embezzlement, tax evasion, theft, or fraud), and
  • the truthfulness and timeliness of tax filings and payments.

Factors That Can Work in Your Favor

Just looking at your financial behavior won’t tell the whole story. The investigation will also consider mitigating factors that can help alleviate the impact of a negative event. Specifically, the Department of Defense will consider:

  • when the behavior occurred
  • whether it was an isolated incident
  • if an incident was beyond your control (for instance, a death in the family, loss of employment, a business downturn, an unexpected medical emergency, divorce or separation)
  • indications that the problem is resolved or under control
  • evidence that you obtained your assets legally, and
  • good-faith attempts to repay creditors and settle debts.

Questions for Your Attorney

  • Would filing for a Chapter 7 or a Chapter 13 bankruptcy be better for my security clearance?
  • I think I was denied a security clearance because of my bankruptcy. Is there recourse or an appeal process?
  • What can I do about incorrect information in my credit report that has negatively impacted my security clearance?
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