I recently watched an interesting webinar on security clearances and bankruptcy. I have had a number of clients over the years that have security clearances. Generally speaking, these clients are civilians who work for defense contractors such as Raytheon. Naturally, they are concerned about of the impact of filing bankruptcy upon their security clearance. My stock answer is that I do not know, but I have filed a number of petitions, and none of my clients have ever reported having a problem keeping or renewing their clearance simply because they filed bankruptcy. To the contrary, I tell them that I believe that filing bankruptcy is probably superior to being deep in debt and unable to pay your bills. After all, the whole point of doing a background check associated with a security clearance is to see if a person is vulnerable to outside control. If someone is deep in debt and cannot afford to pay their bills, that person is vulnerable. If a person has filed bankruptcy and has wiped away their debt, then that vulnerability has gone away. I need Continuing Legal Education Credits to maintain my New Hampshire license (MA has no such requirements), so when I saw that a webinar was available on this subject, I was happy to watch. I was pleased that the civilian webinar instructor largely (although not completely) agreed with me. The military instructor was eye opening.
Where the instructors were not in agreement with me concerned what happens if you have something more going on than a single bankruptcy. The one and only client of mine who had a problem renewing a security clearance answered the question “Have you ever filed bankruptcy”, “No”. I had filed his bankruptcy a couple years earlier, so that was not accurate. That answer did cause some problems. Fortunately in that case, my client was close to retirement and we were able to bog the case down in appeals long enough for him to retire with his clearance still intact. The webinar dealt with a number of complications. The one I found the most interesting concerned filing more than one bankruptcy. The presenter in this webinar felt very strongly that the person should file Chapter 13, and not Chapter 7. He felt very strongly that the person should pay as much as possible, ideally a 100% plan. In fact, he felt that way if there were any other issue that would cause a problem for security clearance, such as a drug issue, a criminal conviction or any other such problem that Facilities Security Officers tend to dwell on.
What I was happy about was that the presenter absolutely agreed that one Chapter 7 bankruptcy by itself is simply not going to be a problem for a civilian seeking or renewing a security clearance. What is more, he seemed to agree with my analysis that filing Chapter 7 is superior to being in a financial mess. One of the requirements for getting or keeping a security clearance for a person with financial problems is to demonstrate that these financial problems are being successfully dealt with. Chapter 7 is a means of successfully dealing with too much debt. I am a little surprised that he would consider Chapter 13 superior to Chapter 7 for anyone with something more than a single Chapter 7 filing on their record. It strikes me that being in a Chapter 13 leaves it a little bit more subjective as to whether or not someone has successfully dealt with the problem, a Chapter 7 issues final discharges quickly. Chapter 13 requires a multi-year payment plan. However, this is a person whose office is right outside the Nuclear Power Plants of the Tennessee Valley Authority, so he deals with this issue a lot more than I do.
There was a second presenter in this webinar whose background was more with military personnel seeking security clearances. This is an area where I am much less familiar because, here in Lowell, we do not have that many uniformed military personnel. Apparently for them, bankruptcy is a bigger deal. If it can be avoided, it should be. However, he also felt that Chapter 13 was superior to Chapter 7. He also felt strongly that being in a financial mess was also the end of the world, so Bankruptcy might still be the superior option. Apparently the military requires after a bankruptcy that the Debtor get something from the Creditor indicating that everything is good now. This can be a bit challenging as it is technically a violation of the bankruptcy discharge for the Creditor to engage in any debt collection activity whatsoever. However, there are tactful ways of bribing a discharged Creditor into issuing such a letter if they will not do it voluntarily.