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Does Bankruptcy Affect my Security Clearance?

Some people hesitate to file a needed bankruptcy because they are afraid of the implications for their job and career. While this trepidation is understandable, it may be unfounded.

The law

Discrimination based on a bankruptcy filing is illegal under federal law. An employer cannot make entry level (hiring) and exit level (firing) decisions based upon:

  • A current or prior Bankruptcy filing: There is no “lookback” period, meaning that a filing ten or twenty years ago cannot come back to haunt you later.
  • A declaration of insolvency: Such legal declarations are rare today.
  • Failure to pay a discharged debt: Technically speaking, bankruptcy extinguishes your obligation to pay the debt and not the debt itself. If you owe a former employer money, you do not have to pay it back after a discharge and a future federal employer cannot hold it against you later.

The application

Different rules apply for mid-level decisions, such as a promotion or upgrading an existing security clearance. An employer may use financial information to make a decision about your overall risk. In other words, if a person is bad with money, should you trust the person with an important secret? Persons with money problems are either considered unreliable or more susceptible to bribery or corruption.

That same section gives a number of reasons to explain past financial difficulty, including:

  • Time: The debt problems occurred long ago, were infrequent, or were based on a one-time occurrence.
  • Control: The debt came on the heels of a situation that the person could not control, such as a job loss, death or illness, yet the person did not simply ignore the problems.
  • Counseling: For example, if gambling caused the debt, the person is in Gamblers Anonymous.
  • Good-faith effort to repay: Nearly all bankruptcy filings come after the debtors have tried to repay their debts but are simply unable to do so.

Already have clearance?

Many of our clients already had security clearance and were concerned about filing bankruptcy. We suggest you contact your superior, explain your situation, and ask for guidance. Generally, they are already aware of your financial difficulties and are happy that you are looking for a way to resolve them. Bankruptcy does not make you a security risk, your financial problems create the risk. Bankruptcy may actually help you keep your clearance, because bankruptcy may resolve your financial problems, reducing the risk.

Contact our office for a free consultation with attorneys who help you get a fresh and fair start.

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