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Will I Lose My Security Clearance If I File For Bankruptcy? by Kevin Gipson, New Orleans Bankruptcy Attorney

“Can I lose my security clearance if I file for bankruptcy?

This is a question that I often hear from members of the Armed Forces, employees of the Transportation Security Administration, and others in Federal service or employment.

In my experience, the answer is No!

In fact, I have had a number of occasions over the years where people seeking employment with the TSA or promotion have been told to go file for bankruptcy. I have also had people in military service that have not only not lost their security clearance because of bankruptcy but have actually received promotions during or after filing

Why?

Because a person in dire financial straits is at risk of making a poor decision such as taking a bribe in an effort to get out of debt. Since Chapter 7 can get rid of most debt, and Chapter 13 can allow the debt to be paid out in a reasonable manner, the motivation to make an unwise decision is gone.

But you don’t have to take my word for it, Here is what the United States Air Force Academy Legal Office says 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 number 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.”

In other words, filing bankruptcy is not the reason a security clearance is revoked. A more important issue is how your debts were incurred. For example, debts incurred from gambling or consistently living beyond your means are heavily frowned upon. Debts from circumstances outside your control, such as a job loss due to the economy, decreased household income because of a divorce, or large expenses for medical treatment are more easily mitigated.

Finally, I would note that section 525 of the Bankruptcy Code states that:

“…(A) governmental unit may not deny revoke, suspend or refuse to renew a license, permit, charter, franchise or other similar grants 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 the debtor has been a debtor under the Bankruptcy Code.”

Carolyn Secor is a Clearwater bankruptcy attorney and Clearwater foreclosure attorney serving Palm Harbor, New Port Richey, Oldsmar, Tarpon Springs, Seminole, St. Petersburg, and the Tampa Bay area.

If you would like more information on our practice, please consult our website at www.bankruptcyfortampa.com or call 727-254-1704.

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