By John V. Berry, Esq., www.berrylegal.com
A number of issues can arise in the context of bankruptcy proceedings for federal employees or government contractors holding security clearances. We have a number of clients that consult with our Firm regarding the effect of filing for bankruptcy in the context of holding a security clearance. Given the current government shutdown, there is the possibility that some clearance holders who have had previous financial difficulties (or may have been on the edge of financial difficulties before the shutdown) may be pushed into bankruptcy proceedings. The most important legal advice that we can offer these clients is that they should consult with legal counsel early, prior to engaging in the bankruptcy process, in order to develop a strategy for responding to security clearance issues that will arise.
Strategies for Dealing with Bankruptcy for the Clearance Holder
Typically, filing for bankruptcy would raise 2 possible concerns under the Adjudicative Guidelines which govern security clearances. The first and most obvious is Guideline F, Financial Considerations. To a lesser extent, there is the possibility that a bankruptcy could raise issues under Guideline E, Personal Conduct. This, however, is less likely.
First of all, it is important that any bankruptcy be reported to one’s security officer promptly. Not doing so could cause the clearance holder to run into more significant issues later on relating to the failure to report these issues. Second, it is critically important that the individual establish a detailed (and written) record of responsibly dealing with the financial issues related to their pending or concluded bankruptcy (e.g. credit counseling, financial advisor assistance).
In these types of cases, it is important to show that the individual has continued to work with creditors (even if the creditor is non-responsive). For this purpose, it is important to keep copies of letters that one drafts to creditors attempting to resolve any outstanding debts. It is also important to point out any ways in which the bankruptcy was caused by unique circumstances that are unlikely to be repeated. Most important, in the security clearance context, it is important to show that the clearance holder has established a sound game plan so that the financial issues involved in a bankruptcy are unlikely to be repeated.
Recent (2013) DOHA Cases Involving Bankruptcy Issues and Mitigation
A few recent 2013 cases from the Defense Office of Hearings and Appeals (DOHA) illustrate some important considerations in dealing with bankruptcy in the context of holding a security clearance.
ISCR Case No. 11-14680 (Aug. 20, 2013) was a security clearance appeal in which the clearance holder was granted a security clearance. The clearance holder had no financial difficulties until 2007 when his home went into foreclosure and he filed for bankruptcy. DOHA concluded that the clearance holder acted responsibly in attempting to resolve his financial difficulties, specifically, that he attempted to work with the bank holding his mortgage, had worked 2 jobs to meet expenses, engaged in credit counseling and showed evidence of reducing his living expenses.
ISCR Case No. 11-09731 (Sept. 9, 2013) involved a security clearance holder that was shown to have a history of overdue debts, due to periods of medical leave without compensation, and a split from her significant other. The clearance holder was also found to have been involved in gambling, which was not resolved. Her debts were not resolved in a Chapter 7 bankruptcy but DOHA found that mitigation had not been shown and denied the security clearance.
ISCR Case No. 11-13879 (Sept. 17, 2013) involved a security clearance holder that filed for bankruptcy principally relating to owning 2 rental properties which became financially difficult to maintain in light of the financial downturn in the economy and in real estate values between 2007-2011. The clearance holder argued, and DOHA agreed, that the downturn in the economy was profound and warranted the application of mitigation. The security clearance in this case was granted.
When holding a security clearance it is important to obtain the advice of counsel where bankruptcy proceedings are anticipated. Our law firm stands ready to advise individuals regarding their security clearance in light of these difficult financial issues. We can be contacted at www.berrylegal.com or by telephone at (703) 668-0070 to schedule a consultation or meeting to discuss these issues.