Dealing with Financial Issues and Security Clearance

One of the topics that gets a great deal of views at our blog is the affect of the filing of a bankruptcy on a security clearance.

I have handled all facets of security clearance issues from initial SF 86 concerns through administrative appeals at the Department of Hearings and Appeals (DOHA) level through appeals to the DOHA Appeal Board.  Financial considerations are probably the number one problem people have with regard to initially obtaining their clearance or having it revoked.   Alcohol and illegal drug use follow as a close second.

Options for Dealing with Financial Concerns

What has really stuck out to me over probably the last 2 to 3 years is that people wait until the clearance is on the eve of revocation to look at their options in order to deal with financial concerns.  Specifically, I will have people come to my office and they have already received a letter from the government stating an intention to revoke a security clearance due to delinquent debts of all types, for example debt collection lawsuits, mortgage foreclosures, auto repossessions, tax liens, wage garnishments, etc.  Most people with clearance concerns have been told or read that they cannot file bankruptcy or that, if they do, they will lose their clearance.  This is, at best, an urban myth and it is absolutely not true.  This fear, then, leads to inaction which results in the loss of a clearance and, of course, the job for which the clearance was required.

Let’s start by looking at the financial questions that are asked on the SF 86.

26. Financial Record

26.1.    In the last seven (7) years have you filed a petition under any chapter of the bankruptcy code?

26.2.    Have you EVER experienced financial problems due to gambling?

26.3.    In the past seven (7) years have you failed to pay Federal, state, or other taxes, or to file a tax return, when required by law or ordinance?

26.4.    In the past seven (7) years have you ever been counseled, warned, or disciplined for violating the terms of agreement for a travel or credit card provided by your employer?

26.5.    Are you currently utilizing, or seeking assistance from, a credit counseling service or other similar resource to resolve your financial difficulties?

26.6.    Other than previously listed, have any of the following happened to you?

1. In the past seven (7) years, you have been delinquent on alimony or child support payments.
2. In the past seven (7) years, you had a judgment entered against you. (Include financial obligations for which you were the sole debtor, as well as those for which you were a cosigner or guarantor).
3. In the past seven (7) years, you had a lien placed against your property for failing to pay taxes or other debts. (Include financial obligations for which you were the sole debtor, as well as those for which you were a cosigner or guarantor).
4. You are currently delinquent on any Federal debt. (Include financial obligations for which you are the sole debtor, as well as those for which you are a cosigner or guarantor).

26.7.    Other than previously listed, have any of the following happened?

1. In the past seven (7) years, you had any possessions or property voluntarily or involuntarily repossessed or foreclosed? (Include financial obligations for which you were the sole debtor, as well as those for which you were a cosigner or guarantor).
2. In the past seven (7) years, you defaulted on any type of loan? (Include financial obligations for which you were the sole debtor, as well as those for which you were a cosigner or guarantor).
3. In the past seven (7) years, you had bills or debts turned over to a collection agency? (Include financial obligations for which you were the sole debtor, as well as those for which you were a cosigner or guarantor).
4. In the past seven (7) years, you had any account or credit card suspended, charged off, or cancelled for failing to pay as agreed? (Include financial obligations for which you were the sole debtor, as well as those for which you were a cosigner or guarantor).
5. In the past seven (7) years, you were evicted for non-payment?
6. In the past seven (7) years, you had your wages, benefits, or assets garnished or attached for any reason?
7. In the pasts seven (7) years, you have been over 120 days delinquent on any debt not previously entered? (Include financial obligations for which you were the sole debtor, as well as those for which you were a cosigner or guarantor).
8. You are currently over 120 days delinquent on any debt? (Include financial obligations for which you were the sole debtor, as well as those for which you were a cosigner or guarantor).

If any of these questions are answered in the affirmative, then a person holding or applying for security clearance has to take a close and detailed look at his or her financial situation. It is not good enough just to tell the CAF (Central Adjudication Facility) who is expressing concerns about a clearance that you are working out a payment plan.

Figure Out Your Debts

First of all, find out exactly what your debts are and who you owe.  The government will get a tri-merge credit report which, in my experience, will be riddled with errors. I advise everyone who is in the process of filling out the SF 86 to get their free credit reports only from annual credit report.com and in writing only.  Follow these instructions to the letter.

If you have no delinquent debts or problem debts showing up on the credit reports, then you are off to a good start.  If, however, you have delinquencies and other issues such as late payments, garnishments, lawsuits, etc., you need to figure out an exact and specific way to deal with each and every one. It is not good enough to ignore any debt issue or problem. Every issue must be addressed when there is a problem.  One way to go about doing this, if you have a true, bona fide dispute on a debt that you do not owe, is to follow the dispute process under the Fair Credit Reporting Act (FCRA).  Keep copies of all dispute letters that you send and responses that you get back and provide them to the government CAF that is looking at your clearance as a way to explain that you are in the process of disputing erroneous debts under the FCRA.

If You Do Have Debts

If there are debts, however, which you do owe but simply cannot pay, then, at a minimum, try to work out a detailed repayment plan of all problem debts.  Make sure you keep all correspondence and proof of payments on the debts so you can present that to the CAF. Also, if the debt is truly overwhelming, you should explore your bankruptcy options with a competent bankruptcy lawyer who is familiar with and has a working knowledge of security clearance issues.

As a general rule, one bankruptcy in a lifetime with no other issues as far as drug abuse, alcohol problems, criminal conduct or anything else, will not cause an individual to have an issue with his or her clearance.  Our Bond and Botes attorneys strongly advise immediate notification of the Facility Security Officer (FSO) of the organization that you work for with regard to the bankruptcy filing.  We provide a PDF copy of the bankruptcy petition with instructions to forward that to the FSO and to say “I am reporting to you that I had to file for either Chapter 7 or Chapter 13 bankruptcy.”  With that statement, email a copy of the petition to the FSO.  That will put the FSO on notice and it will also go a long way to show that you are not hiding anything. The FSO, as required, will make a notation in the JPAS system.  That should be the end of it. At the same time, we advise our clients to write up a detailed story for their own private file to keep explaining how they got into this financial situation. That way, if and when asked down the road questions do arise, there is a detailed explanation available.

Mitigating Factors

The government allows for specific mitigation if it has concerns regarding financial issues of a person holding or applying for a security clearance.  These specific mitigating factors are as follows:

Financial considerations. A person who is financially overextended. Conduct that could mitigate security concerns include:

i.  The behavior was not recent

ii.  was an isolated incident

iii. 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)

iv. 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

Mitigating factors iii and iv allow for a bankruptcy to be filed.  One cautionary note, however, I have seen cases where multiple bankruptcies in a lifetime, as few as 15 years apart, have caused the government to look skeptically upon allowing a person to keep his or her clearance.  In that type of situation, if there is more than one bankruptcy in a lifetime, we advise exploration of and the filing of a chapter 13 bankruptcy, if at all possible.  In our experience, that will give much more of a safe harbor where a security clearance is concerned.  As a general rule, we like to see a chapter 13 in any event because an attempt to pay back debt, versus a chapter 7 where you try to discharge and get rid of debt, has a better feeling of good faith on a lot of fronts to the laypersons handling security clearance review.  Additionally, if there are other issues of any other type, in addition to financial problems, we also recommend looking very strongly at filing a Chapter 13 bankruptcy if you need to address financial problems.

Security Clearance Help

When people have or are applying for jobs that require a security clearance, the clearance, then, is of paramount importance. It is important to get a handle on your situation early and not try to play catch-up if the clearance is suddenly at risk.  I advise clients nationwide through the initial questions on the SF 86 all the way through the hearing process, if it gets that far. The goal, of course, is to put the government’s concerns regarding a clearance to rest at the earliest possible level with the overarching hope that it doesn’t even become an issue in the first place.  Please feel free to reach out to me for a consultation if you would like to discuss your situation regarding financial issues or any other security clearance concerns that you may have.  From my experience, preventative maintenance and care of a security clearance at the earliest possible time is the best mechanism to prevent the loss or revocation of a clearance. Contact me today.