How will bankruptcy affect my security clearance?

If you work for the government, having a security clearance may be a condition of your employment. If you are also having financial problems, you may have heard that filing bankruptcy would cause you to lose your security clearance. Faced with the possible loss of your job, you may have been hesitant to seek the relief you need. However, the truth is the mere act of filing bankruptcy does not lead to the automatic loss of security clearances in most cases.

Factors affecting security clearances

Generally, government agencies make security clearance decisions on a case-by-case basis. Some of the factors considered when deciding whether to issue or revoke a security clearance include:

• Criminal acts

• Allegiance to the United States

• Psychological disorders

• Use of alcohol or drugs

• Your handling of classified or confidential information

• Personal indiscretions

• Financial responsibility

In general, if your life's history contains evidence of untrustworthiness or unreliability, it can raise questions on whether you can be trusted to be responsible when working in a secure environment.

How bankruptcy can affect your security clearance

Since financial responsibility is one of the factors considered in security clearance decisions, many people mistakenly believe that filing bankruptcy is evidence of financial irresponsibility. However, this is not the case. Although filing bankruptcy may open up a line of inquiry or trigger an investigation when it comes to security clearances, in general the mere act of filing bankruptcy is not sufficient to revoke or deny your security clearance. The more important factor in determining whether you obtain or keep your clearance is the reason you filed bankruptcy.

In general, if you filed bankruptcy for "good" reasons (which are responsible for the majority of consumer bankruptcies) such as a job loss, divorce, medical emergency or wage cuts, your bankruptcy will likely be viewed favorably. In such cases, the agency may even regard your bankruptcy as proof that you are taking positive steps towards resolving your financial problems. As a result, it would be unlikely that your clearance status would be affected.

Conversely, filing bankruptcy for certain lesser reasons can cause problems for your security clearance. Such reasons may include filing bankruptcy because of:

• Frivolous or irresponsible spending

• Illegal acts or financial misconduct such as fraud, theft, embezzlement or tax evasion

• Maintaining a lifestyle that is beyond your means

• Financial problems related to drug or alcohol abuse or gambling

• A history of having difficulty meeting your financial obligations

• Failing to properly file your income taxes

Speak with an attorney

The bottom line is that persons that file bankruptcy because of circumstances beyond their expectation or control generally do not have anything to worry about. As a result, if you are faced with financial problems, it is generally better to do something about them, rather than ignore them out of fear of losing your security clearance. An experienced bankruptcy attorney can counsel you further about your debt relief options and assist you in getting rid of your burdensome debt, while minimizing any negative outcomes.