Law Office of Phil Hineman

Military Clearance and Bankruptcy

A common question concerning bankruptcy is how it may affect active duty military or government workers, or employees of defense contractors.  Many have security clearance, which is a mandatory portion of their employment.  The guidelines can be found under Department of Defense Directive 5220.6, which covers issues related to security clearance, including financial concerns.

E2.A6.1.1. The Concern: An individual who is financially overextended is at risk of having to engage in illegal acts to generate funds. Unexplained affluence is often linked to proceeds from financially profitable criminal acts.

E2.A6.1.2. Conditions that could raise a security concern and may be disqualifying include:

E2.A6.1.2.1. A history of not meeting financial obligations;

E2.A6.1.2.2. Deceptive or illegal financial practices such as embezzlement, employee theft, check fraud, income tax evasion, expense account fraud, filing deceptive loan statements, and other intentional financial breaches of trust;

E2.A6.1.2.3. Inability or unwillingness to satisfy debts;

E2.A6.1.2.4. Unexplained affluence;

E2.A6.1.2.5. Financial problems that are linked to gambling, drug abuse, alcoholism, or other issues of security concern.

E2.A6.1.3. Conditions that could mitigate security concerns include:

E2.A6.1.3.1. The behavior was not recent;

E2.A6.1.3.2. It was an isolated incident;

E2.A6.1.3.3. 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);

E2.A6.1.3.4. The person has received or is receiving counseling for the problem and there are clear indications that the problem is being resolved or is under control;

E2.A6.1.3.5. The affluence resulted from a legal source; and

E2.A6.1.3.6. The individual initiated a good-faith effort to repay overdue creditors or otherwise resolve debts.

In particular, there are several issues that might arise in bankruptcy.  However, those financial issues may exist with or without a bankruptcy filing.  Depending on how the debt was accrued, the outcome may vary greatly.  If there was an unexpected job loss, medical illness, or other circumstances, bankruptcy can be seen as dealing responsibly with unexpected debt.  If the debt was incurred by spending recklessly, or gambling, it could be seen negatively by the DoD.