The Impact Of Bankruptcy On Your Security Clearance

01 Jan The Impact Of Bankruptcy On Your Security Clearance

You will not lose your security clearance after you file for bankruptcy.

Members of the Armed Forces, employees of the Transportation Security Administration and others in Federal service or employment have security clearance to do their jobs.

If you depend on your security clearance to stay employed, you need to keep it intact.

Luckily, filing for bankruptcy won’t risk your security clearance.

Here are the facts.

Why You Won’t Lose Your Security Clearance

Because a person in dire financial straits is at risk of making a poor decision such as taking a bribe in an effort to get out of debt. Since a Chapter 7 can get rid of most debt, and a Chapter 13 can allow the debt to be paid out in a reasonable manner, the motivation to make an unwise decision is gone.

But you don’t have to take my word for it

Here is what the United States Air Force Academy Legal Office says about bankruptcy:

The status of your security clearance can be affected, but it is not automatic. The outcome depends on the circumstances that led up to the bankruptcy and a number of other factors, such as your job performance and relationship with your chain of command. The security section will weigh whether the bankruptcy was caused primarily by an unexpected event, such as medical bills following a serious accident, or by financial irresponsibility. The security section may also consider the recommendations and comments of your chain of command and co-workers. This is an issue that can be argued both ways, so as a practical matter your security clearance probably should not be a significant factor in making your decision about whether to file bankruptcy. The amount of your unpaid debts, by itself, may jeopardize your clearance, even if you don’t file bankruptcy. In that sense, 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. There is no hard and fast answer there, with one exception: It never hurts to have a good reputation with your co-workers and your chain of command.

The Bankruptcy Law Says So, Too

Finally, I would note that section 525 of the Bankruptcy Code states that:

…(A) governmental unit may not deny revoke, suspend or refuse to renew a license, permit, charter, franchise or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under the Bankruptcy Code solely because the debtor has been a debtor under the Bankruptcy Code.

Why Did You Fall Into Debt?

Bankruptcy is not the reason a security clearance is revoked.

A more important issue is how your debts were incurred.

For example, debts incurred from gambling or consistently living beyond your means are heavily frowned upon.

Debts from circumstances outside your control, such as a job loss due to the economy, decreased household income because of a divorce, or large expenses for medical treatment are more easily mitigated.


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I've been a consumer bankruptcy lawyer for nearly 25 years. Since that time I have helped many people resolve their financial problems. I have been practicing law since 1986 and I am licensed to practice in all state and federal courts in the State of Louisiana. Because I am a sole practitioner, you know that your debt matters are being handled by me personally. In addition to my work with consumers, I am also frequently asked to speak at local seminars on bankruptcy law. I am member of the following organizations: • Louisiana Bar Association • National Association of Consumer Bankruptcy Attorneys • Bankruptcy Law Network My office is located at: 3920 General DeGaulle Drive, New Orleans, LA 70114 Telephone: (504) 368-4101

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