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07

Aug 2011

Bankruptcy and security clearance, and defense cutbacks.

Posted by / in General Information About Bankruptcy Law / 19 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.

Bankruptcy and security clearance

Virginia bankruptcy lawyer Robert Weed on Security Clearances

Some people think the worst thing you can do for your clearance is file bankruptcy. That’s completely false. The worst thing you can do is to ignore the problem. If you get into financial trouble, you need to talk to your FSO and then clean it up.

Some 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  So much in the security clearance world is not for publication.)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.”

Here’s a post on security clearances, from the US Army Ft Meade.  They say it’s a “myth” that filing bankruptcy means you lose your clearance.  They say, and I agree, you need to be ready to explain how and why you got into trouble.

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.

Bankruptcy and Security Clearance articles by two other lawyers

(Russ DeMott, a bankruptcy lawyer in Charleston, SC, has an excellent article on bankruptcy and 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.)

(Here’s a more recent article by Brett Weiss, a bankruptcy lawyer in Maryland, who says pretty much what I am saying here about bankruptcy and security clearances.    He also emphasizes the importance of self reporting to your clearance officer when you get into financial trouble, and before you file the bankruptcy.)

Bankruptcy and Security Clearance Update–December 2014

Yesterday, a Federal agent came to talk to me.  A young lawyer who had worked for me for a couple years had taken a Federal job.  she needed a clearance.

So the Federal agent was doing an investigation.

No surprise there.

Here’s the headline.  The Federal agent, the guy doing the clearance investigation, had filed bankruptcy with me back in 2001.  He didn’t just have a clearance himself–he was doing clearance investigation.  (And back in 2001 he was working for the same agency he was working for now.)

Proof of what I tell people. If you get into financial trouble, you need to clean it up.  And if you can’t clean it up any other way, then file bankruptcy.  The people who lose their clearances are the people who just let the problem get worse.  Be responsible, take control, fix the problem.  File bankruptcy.   (And don’t forget to self-report.)

Bankruptcy and Security Clearance Update–December 2015

Just filed Chapter 7 bankruptcy for Don and Donna.  Both disabled veterans, both battling multiple medical issues, and starting a new family.

They first came to see me in February 2014.  they were in trouble because they downed a house in an area with defense cutbacks that they couldn’t sell.   Told them they needed to file bankruptcy to fix that problem.

Don lost his nerve and they didn’t come back until October 2015.  Don’s clearance had been suspended, along with his job, for financial irresponsibility–and failure to self report.  That’s exactly what I told him would happen, if he did NOT file bankruptcy.  If he was a contract, he’d just be out of luck–and out of a career.  Because he’s a Federal employee, he has more protections.  I’m HOPING that his clearance will be saved on appeal, now that he has, finally, taken care of the problem.

 

Bankruptcy and Security Clearance Update–December 2017

December 28, 2017

Got an email today from “Candace.” She said she had lost her security clearance because of “financial concerns.” I make this point over and over. People do NOT lose their clearance for filing bankruptcy. You DO lose your clearance for not dealing with the problem. Usually dealing with the problem involves three steps. Talk with a lawyer and figure out what you have to do. Self report that you have financial problems and are taking steps to deal with them. If necessary have the action you are taking approved by a court.

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13

May 2011

After bankruptcy. Help! They're suing my LLC!

Posted by / in General Information About Bankruptcy Law / 16 comments

Many people who file bankruptcy are small business owners.  Especially owners of one-person small businesses.  People like the freedom of being their own boss, but it can be a tough way to make a living.

small business

Operating a small business can be a tough way to make a living

A lot of those small businesses are set up as corporations or LLC’s.  Why?  People have heard that they are not liable for the debts of their business if they incorporate.   That’s true.

(Now starting out, nearly everyone you do business with will want you to sign a personal guarantee.  So that protection doesn’t go as far as you’d like.  And those personal guarantees for a lot of people are the reason for the personal bankruptcy.)

The advantage of setting up a corporation or LLC turns against you, if you have to file bankruptcy.  Why?  Just like you are not liable for the business’s debts, the business is not covered by your bankruptcy.  You are not the corporation; the corporation is not you.

That hits home hard after the bankruptcy, when creditors keep sending bills, or even send court papers, in the name of your corporation or LLC.   What to do?

Well, if the business is closed, do nothing!  Go back to square one.  Why did you set up the corporation or LLC in the first place?  Because you are not liable for the corporation’s debts.  So if they bill the corporation, you don’t care.  If they sue the corporation, you don’t care.  That was the whole point.  You are not the corporation.  You are not liable for the corporation’s debts.

If the business is closed, why do the bills keep coming?  Why would collection agencies go after closed businesses?  To scare people–specifically to scare people into paying.   The key thing here is, don’t be scared into paying.

“I’ve filed bankruptcy, so I don’t have to pay.  The XYZ Company is out of business, so it can’t pay.”  Keep those two things in mind and you’ll be fine.

(Suppose you are still operating.  Now that’s trickier.  We need to talk about that in person.  If you had a lawyer, accountant or business advisor when you started up, you need to go back to that person again, too.  It’s really important to do that right.)

But if you have closed, then it’s simple.  You don’t care.

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03

Apr 2011

Does bankruptcy help with inherited debt?

Posted by / in General Information About Bankruptcy Law / No comments yet

“Do I need to file bankruptcy on inherited debt?”

In my twenty years as a bankruptcy lawyer, I’ve been asked about bankruptcy and inherited debt maybe four or five times.

Someone’s mother or father passed away, leaving nothing but credit card and medical bills.  What to do?  Does bankruptcy help?  Most people know that you don’t need to file bankruptcy–because you can’t inherit debt in America. I never thought I’d need to talk about it in my bankruptcy blog.

(Unless you were already a co-signer, collectors cannot come after you for the bills of your mother or father.   At least they shouldn’t.)

So I was surprised by a news release posted on the internet March 31, 2011.  Debt collector Phillips & Cohen brags about their leadership in collecting “deceased account recovery.”  Deceased account recovery?

Now if someone dies and leaves a probate estate, legitimate creditors should be paid.  That’s one of the things that Phillips & Cohen says they do, on their website.

They also say they have “effective family … communication.”  What’s that???

The Fair Debt Collection Practices Act says that a collector cannot communicate with anyone other that the consumer debtor or spouse or attorney or the credit bureau.  The only exception is to obtain “location information.

So I’m not sure how these people–who are clearly collectors–communicate with family.  They aren’t trying to locate someone they know is deceased.  Doesn’t any other communication instantly violate the FDCPA?

If a loved one dies and leaves a probate estate, creditors should be notified and legitimate debts should be paid.

But if they leave nothing, you do not inherit the debt.  Don’t let anyone tell you that you do.

There’s no need to file bankruptcy.

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NORTHERN VIRGINIA BANKRUPTCY LAW OFFICES