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Filing Bankruptcy and My Security Clearance

Norma Duenas

Posted By:

Chapter 13 Bankruptcy


The short answer is that the filing of a bankruptcy caseitself will not affect your security clearance. However, the reasons that a person might file a bankruptcy case could cause a security clearance problem.

This is a very important question with a nuanced answer, so we will go through our explanation carefully.


Let’s start simple: bankruptcy itself is not a problem because it makes you LESS of a security risk than if you didn’t file.

When you complete the security clearance application form, you are required to disclose your financial life in great detail. See, for example, the 7-page Financial Record portion of the Standard Form 86 Questionnaire (for National Security Positions). So to the extent you are in financial trouble, your application form will show it.

The question is how you address your financial difficulties. Generally, filing bankruptcy shows that you are dealing with your debts. Bankruptcy can eliminate debts, restructure them, and even enable you to pay important debts. A security clearance is about your reliability and trustworthiness. Bankruptcy INCREASES your reliability and trustworthiness. It lowers the risk that you’d be tempted to take care of financial problems through wrongdoing.


According to the U.S. Defense Security Service, the

purpose of a security clearance is to determine whether a person is able and willing to safeguard classified national security information, based on his or her loyalty, character, trustworthiness, and reliability.

How is this determined? According to the Defense Security Service’s answer:

All available, reliable information about the person, past and present, favorable and unfavorable, is considered in reaching a clearance determination. When an individual’s life history shows evidence of unreliability or untrustworthiness, questions arise whether the individual can be relied on and trusted to exercise the responsibility necessary for working in a secure environment where protection of classified information is paramount.

Under these guidelines, again it’s not bankruptcy itself that’s a potential problem. Rather the reasons for the bankruptcy may be. If the reasons for filing bankruptcy relate to fraud, criminal behavior, gross irresponsibility, or a consistent lifelong history of financial problems, then these reasons indicate the lack of trustworthiness and reliability, a deficiency of character, and a likely inability to act with loyalty.


The Department of Defense’s Directive 5220.6 contains the general rules about the security clearance process. Its Guideline F (at pages 29-30) addresses the potential concern of “Financial considerations.” The concern is that an ” individual who is financially overextended is at risk of having to engage in illegal acts to generate funds.”

The Guideline gives a list of 5 “[c]onditions that could raise a security concern and may be disqualifying.” It’s very noteworthy that these conditions do NOT include filing bankruptcy.

However they do include the “inability or unwillingness to satisfy debts,” and a “history of not meeting financial obligations.”

Guideline F also has a list of 6 “[c]onditions that could mitigate security concerns, including:

  • The conditions that resulted in the behavior were largely beyond the person’s control (e.g., loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation);
  • The individual initiated a good-faith effort to repay overdue creditors or otherwise resolve debts.


Bankruptcy is authorized by the United States Constitution. (Article 1, Section 8, Clause 4.) It’s near the top of a long list of legislative powers granted by the Constitution to Congress. Under the resulting Bankruptcy Code you have legal ways to permanently “discharge” debts (write them off), restructure them by paying less or changing the payment terms, or to pay certain important debts and pay less or nothing on other debts. All of these are legal ways to “otherwise resolve debts.”


That’s true.

There are 13 Guidelines covering reasons why security clearances are denied. These include:

  • Guideline A: Allegiance to the United States
  • Guideline B: Foreign Influence
  • Guideline C: Foreign Preference
  • Guideline D: Sexual Behavior
  • Guideline E: Personal Conduct
  • Guideline F: Financial Considerations
  • Guideline G: Alcohol Consumption
  • Guideline H: Drug Involvement
  • Guideline I: Psychological Conditions
  • Guideline J: Criminal Conduct
  • Guideline K: Handling Protected Information
  • Guideline L: Outside Activities
  • Guideline M: Use of Information Technology Systems

Based on the 273 decisions issued by the Department of Defense Office of Hearings and Appeals during the first 4 months of 2016, by far the most common reason why a security clearance was denied was based on Guideline F, Financial Considerations. This Guideline was involved in 205 of those 273 decisions. No bankruptcy was filed in most of those decisions.


As I said earlier, whether a security clearance is granted turns on the conduct or circumstances that caused the bankruptcy, and also whether the debts were “resolved” through bankruptcy.

Here are three situations that show this quite clearly.

1. A security clearance was granted to a 40-year-old security guard who filed a Chapter 7 case after a home foreclosure and vehicle repossession, to discharge those and other debts. He’d had no financial difficulties until 2007 when his home went to foreclosure. That was the result of the unexpected loss of financial contributions towards the mortgages by his fiancée when she lost her job. According to the administrative judge he acted responsibly given the misleading representations made by his mortgage lender that he would be able to refinance within a year.

It seems clear that this person would not have been successful in getting a security clearance had he not filed the Chapter 7 case. The decision states as part of the justification for granting the security clearance:

On the advice of an attorney, he filed for bankruptcy, and his nonpriority debts were discharged in April 2013. He no longer has delinquent debt. . . . . He is saving money. He benefited from the financial counseling component of the bankruptcy. . . . . His current financial status is stable. He has a savings account. He has not acquired any new delinquent debt.

2. Another case shows how bankruptcy does not necessarily lead to the granting of a security clearance when it does not solve the underlying problem. A woman filed a Chapter 7 case discharging a substantial amount of debts. A portion, about $2,200, was in the form of 5 bounced checks to a casino related to her gambling. She admitted to gambling regularly since about 2000, and had continued to do so up through the prior year, about 2012, unsuccessfully trying to win back her losses.

The administrative judge’s conclusion was that:

Overall, Applicant’s long history of gambling has contributed to her financial problems, and her attempts at chasing losses, plus her continued gambling is a significant concern that has not been mitigated. Therefore, I conclude that Applicant has not mitigated the financial concerns of the Government.

Important for our purposes,

Since most of Applicant’s debts have been resolved in bankruptcy, and Applicant is current with her recent debts, this mitigating condition is a factor for consideration in this case.

This is an indication that but for the gambling issue this woman may well have won her security clearance, largely because of the resolution of most of her debts through bankruptcy.

3. The final case involved an equipment test technician who had filed a Chapter 7 bankruptcy case back in 1992 resulting from a year-long layoff, and then filed a Chapter 13 case in 2013. The Chapter 13 case was ongoing, with a court-approved payment plan. This case had mostly resulted from owning two rental properties which caused him great financially difficulties in light of the financial downturn in real estate values between 2007-2011. The administrative judge stated:

Applicant received some financial counseling, and he generated a budget as part of the Chapter 13 Bankruptcy process. Although there is limited evidence of record that he established and maintained contact with his creditors, his financial problem is being resolved or is under control. He has a bankruptcy court-approved payment plan to resolve his remaining debts.

The conclusion:

In sum, Applicant fell behind on his debts primarily because of the decline in the real estate market, failure of his tenants to pay rent, increased credit card fees and interests, and insufficient income. The Bankruptcy Court has assessed his ability to pay his creditors and determined his monthly payment. . . . . He has established his financial responsibility. It is unlikely that financial problems will recur. His efforts are sufficient to fully mitigate financial considerations security concerns.

The security clearance in this case was granted.


These three cases, and everything we’ve said here, show that bankruptcy itself does not hurt your security clearance. Indeed filing bankruptcy can often be crucial in successfully getting or retaining your security clearance. But it’s very much depends on the facts of each person’s case, and on the nature of the debts and the person’s conduct in acquiring and then dealing with them.

When getting or retaining a security clearance in the midst of financial hardship, it is important to get the advice of a knowledgeable lawyer as you consider filing bankruptcy.

FREE Phone or Office Consultation

Bankruptcy Attorney Norma DuenasOrange County and Riverside bankruptcy attorney Norma Duenas has represented more than 3,000 individuals and couples in filing for Chapter 7 and Chapter 13 bankruptcy. Her focus is on ensuring that clients understand how bankruptcy works and whether it is the right option for their unique financial circumstances.

Attorney Duenas’ approach is to present those taking advantage of a FREE consultation the best possible options available to resolve their financial problems and to help them rebuild their financial future. Ms. Duenas is a member of the National Association of Consumer Bankruptcy Attorneys and has an Excellent rating among clients on Her law office is also part of the Better Business Bureau and has an A rating.

As part of meeting with Norma Duenas you will fill out a questionnaire in person or online from home that will help us evaluate your financial situation and determine if bankruptcy can eliminate your debts and stop creditor collection efforts. Our founding attorney, Norma Duenas provides a free phone or office consultation up to one hour to review your facts, answer your questions, and provide you with all possible options.

If you need further assistance or to schedule a free phone or in-person consultation, please call us at 866-337-7220 or email us if calling us is not practical or it’s after hours.

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