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Security Clearance – Bankruptcy

How a Security Clearance is Affected by Bankruptcy

The filing of a bankruptcy can have a positive effect on a person’s eligibility for a security clearance. Financial responsibility is but one of many factors to be considered in granting or denying a security clearance.

32 C.F.R. section 147.1 sets forth guidelines for all United States Government civilian and military personnel, consultants, contractors, employees of contractors, licensees, certificate holders or grantees and their employees and other individuals who require access to classified information. These guidelines apply to both the initial or continued eligibility for access to classified information including sensitive compartmented information and special access programs.

32 C.F.R. section 147.7 sets forth the guidelines for personal conduct which are used to determine the granting or denial of a security clearance. These include generally: refusal cooperate with the required security processing including medical or psychological testing, refusal or failure to accurately and complete the required forms, deliberately providing false information, exhibiting a pattern of dishonesty, association with person involved in criminal activity or conduct or concealment of information that may increase a person’s vulnerability to coercion, exploitation or duties which may render the person susceptible to blackmail.

32 C.F.R. section 147.8 sets forth the guidelines for financial considerations which are used to determine the granting or denial of a security clearance. These include: (1) a history of not meeting financial obligations, (2) deceptive or illegal financial practices such as theft, false loan statements, income tax evasion and financial breaches of trust, (3) inability or unwillingness to satisfy debts, (4) unexplained affluence, (5) financial problems that are linked to gambling, drug abuse, alcoholism, etc.

Mitigating factors to adverse financial considerations include: (1) that the conduct was not recent, (2) the conditions that resulted the behavior was beyond the person’s control such as loss of a job, business downturn, medical emergency, death, divorce or separation, (3) the behavior was an isolated incident, (4) the person is receiving counseling for the problems and that there are clear indications that the problem is being resolved or is under control, (5) the affluence resulted from a legal source (ie inheritance, lawsuit proceeds, etc.) and (6) the individual initiated a good faith effort to reply overdue creditors or otherwise resolve debts.

The filing of a bankruptcy is an excellent means to “otherwise resolve debts”. San Antonio Bankruptcy attorney Martin Seidler has filed many bankruptcies over the past 42 years for military, civil service and civilian personnel whose security clearances were jeopardized by owing too much debt. This is accomplished through the granting by the Court of a discharge in bankruptcy which renders the debt unenforceable and usually serves to raise one’s credit rating.

The consumer creditors who normally report to the credit bureaus must report the discharged debt listed in the bankruptcy as zero balance “included in bankruptcy”. The debt is no longer reported as being owed. This usually results in an increased credit score.

It must be kept in mind that a bankruptcy filing and discharge are mitigating factors in the security clearance evaluation process. They may be overcome by too many other adverse factors both financial or personal. Nevertheless, a bankruptcy filing is a good start to the “road to financial recovery”, re-building one’s credit rating, and showing that a person is making a good faith effort to resolve his debts.