Will I Lose My Security Clearance if I File for Bankruptcy?

This question is common among members of the Armed Forces or Federal employees and can often cause hesitation when making the decision of whether or not to file bankruptcy.  While each situation is different, the answer in most cases is no.  The reason for this is simple:  when someone is in a difficult financial situation, they are more likely to make a poor decision or accept a bribe in order to remedy the situation.

However, the United States Air Force Academy Legal Office has this to say 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 amount 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 our Doral office, we have had several clients from the Metro Dade Police Department and the US Southern Military Command (SOUTHCOM).  Often, it was a letter about a five- year security review that finally kicked them into action.  Their bankruptcies helped them maintain their security clearance.