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General Information About Bankruptcy Law

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07

Aug 2011

Bankruptcy and your security clearance, and defense cutbacks.

Posted by / in General Information About Bankruptcy Law / 10 comments

Defense cutbacks are now certain.  (At least as certain as anything is in this world.)

Lots of people whose jobs seem safe now will soon be out of work.

Will you lose your job and get behind on your debts?  Please don’t jeopardize your security clearance–and your future.  Please don’t put off filing bankruptcy.

That’s the lesson of the thousand people with security clearances I’ve helped. And the lesson of the half dozen who lost their security clearances because they filed bankruptcy too late.

Most people think bankruptcy destroys your security clearance.  That is false.  The worst thing for your security clearance is “irresponsibility.”

It is irresponsible to get into debt you can’t pay.

But if you have debt you can’t pay, the responsible thing to do is clean it up.  The irresponsible thing is to ignore it.   The irresponsible thing is to drag out the problem.

This is not just me talking.  The legal office of the Air Force Academy says the same thing.  (Thanks to the Air Force Academy for putting this valuable information in writing.  So much in the security clearance world is not for publication.)

“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.”

Let me make it clear.  Bankruptcy is not a good thing.  Paying everything on time is a good thing.  But bankruptcy is better than not paying. It is better than ignoring the problem.

I’ve helped a thousand people with clearances; and I know a handful who have lost their clearances.  Nearly all lost clearances for an obvious reason–they did not come to see me in time.  They did nothing until they were told they were in clearance trouble for financial irresponsibility.  Then they checked around.   Then they found out they should have filed bankruptcy when they first got into trouble.

Too late.  They needed to show responsibility by facing the problem when they first got into the financial problem.   Waiting until you get into a clearance problem is waiting too long.

Don’t wait too long.

(Russ DeMott, a bankruptcy lawyer in Charleston, SC, has an excellent article on security clearances.   His experience is pretty much the same as mine.  Except that he’s mostly talking about active duty military people.  And my experience is mainly with civilians:  DoD, CIA and Homeland Security employees, and employees of contractors in the defense, intelligence and security fields.)

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Robert Weed has helped twelve thousand people file bankruptcy in Northern Virginia. Robert Weed is a frequent panelist and speaker at the meetings of the National Association of Consumer Bankruptcy Attorneys. He is one of Northern Virginia’s most experienced personal bankruptcy lawyers. As an expert on changing consumer bankruptcy laws, Robert Weed has been interviewed on local and national TV and quoted in newspapers across the country.

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10 comments
  • Tom S.

    August 15, 2011, pm31 9:08 PM
    01

    Dear Mr. Weed – I just finalized a Chapter 7 bankruptcy with all of my non-secured debt (except IRS and Sallie Mae) being discharged. One of the debts was a second mortgage with Wells Fargo in which the house was a short sale that my ex-wife and I were co-borrowers. The first mortgage was mostly paid off but the second was not. Since this debt was discharged for me, can Wells Fargo now go after my ex-wife? She has a security clearance she needs to protect and wants to know if she will need to declare bankruptcy because she cannot take on the additional debt. She lives in Northern VA as well.

    Thanks.

    • Robert Weed

      August 16, 2011, am31 6:40 AM
      02

      Yes they can and will. Wells Fargo is almost certainly damaging her credit report and jeopardizing her clearance–right now. She can check at experian.com/reportaccess.

      She should certainly talk to a bankruptcy lawyer and if she’s in this area, I’m eager to meet with her.

  • Anthony Ciuca

    November 17, 2011, pm30 3:49 PM
    03

    I agree with Mr. Weed’s opinion regarding a bankruptcy’s effect on an individual’s security clearance status. The federal government considers a person’s financial history as a very important guideline when deciding to grant or deny a security clearance. A person may be more susceptible to blackmail and/or inclined to sell government secrets if that person needs money to pay off substantial debts. Filing for bankruptcy is a legal method for discharging such debt and eliminating that person’s need to obtain money through illegal means. Of course, it is important to note that the government is also concerned about a person’s “attitude” toward their financial affairs as an indicator of responsibility and trustworthiness. However, if you are already delinquent on debts and/or overextended financially, the government will most likely question your clearance status whether or not a bankruptcy petition is filed or not. Therefore, your decision to file for bankruptcy should be based upon your specific financial situation (after consultation with a bankruptcy attorney), rather than concerns about your clearance.
    If your clearance is denied or revoked due to financial considerations, you should be provided an opportunity to appeal for its reinstatement. You should definitely consult with a security clearance lawyer who can assist you with such an appeal.

  • Eric W

    February 14, 2012, pm29 6:10 PM
    04

    I filed bankruptcy with your office in October 2010. In case it is helpful for future clients, I had no issues with keeping my TS security clearance as a result of the Chapter 7, I just needed to report it and provide paperwork with the facts. I even got through my 5-year re-investigation without issues.

    • Robert Weed

      February 14, 2012, pm29 6:10 PM
      05

      Thanks for passing that on.

  • Vicki K

    March 7, 2012, pm31 5:52 PM
    06

    I have just send an email for Mr. Weed to contact my husband and I. We had to relocate to Northern VA because we were both laid off. Thanks so much Eric W!! I just got a new job and also informed the SSO of my issue with my home, told them everything and got my TS clearance reactivated. Now we will take care of this house situation and I will be sure and give the SSO an update as soon as it is done.

  • Robert Weed

    November 19, 2012, am30 10:21 AM
    07

    Just got a call today from someone who met with me in November 2011, and then decided NOT to file bankruptcy. He is calling now because he lost his clearance and then his job.

    Please believe what I say here. Filing bankruptcy is NOT a good thing–paying everything on time is a good thing. But if you can’t pay on time, self reporting and filing bankruptcy gives you a very good chance to save your clearance. Doing nothing gives you a very good chance of losing it.

  • Robert Weed

    Robert Weed

    May 16, 2013, pm31 8:10 PM
    08

    Got an email today from John, not his real name, telling me he had just gotten approved for a top secret.

    John filed bankrutpcy with me in November 2012, and it had been discharged in March–just two months ago. He had a secret clearance and needed to get top secret. He was able to get top secret just two months out of bankruptcy!

    His facts were good–two big problems: medical expenses of an elderly parent; and a house in Charleston bought when he was stationed there when values were high and now impossible to sell.

    Now, it’s a lot easier to KEEP your clearance through bankrutpcy than to get a new one AFTER bankruptcy. But this is just a reminder for people who have heard that bankrutpcy means you can’t ever get a clearance.

    That’s totally false. Irresponsibility means you can’t ever get a clearance. So if you are in financial trouble, through no fault of your own, responsibility is cleaning it up. Irresponsibility is ignoring the problem.

  • donnel

    September 18, 2013, pm30 4:11 PM
    09

    I recently had my public trust clearance rejected because of mortgages that were showing on my credit. in one mortgage SAXXON mortgage was sued by the FEDS because of illegal foreclosure practices. Another investment mortgage was with BANK OF AMERICA who are also sued by the FEDS.
    My primary home is with WELLS FARGO who are adamant on foreclosing.

    What can I do? I have an interview coming up for another position with IRS in 30 days. If I file CH 7 now will that help give me a clean slate?

    • Robert Weed

      Robert Weed

      September 18, 2013, pm30 4:18 PM
      10

      Donnel:

      Can’t promise you that filing bankruptcy will fix your problem. Only that bankruptcy is FAR LESS of a problem than unpaid debts.

      You know what doing nothing is doing for you–that doesn’t work. You can try to see if bankruptcy will fix it.

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