If I file for bankruptcy will it affect my military status or security clearance?

The status of a service member’s security clearance can be affected by the filing of bankruptcy, but this is not automatic. Bankruptcy by itself is not a reason for a security clearance to be denied; it’s what led to the bankruptcy and what has been done with the finances since the bankruptcy that matters. The outcome also depends on other factors, such as job performance and relationship with the 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. It is important that you be honest about having filed for bankruptcy as well as the financial problems that caused the bankruptcy. If you are not honest in the security clearance process, you simply will not receive a clearance.

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 here, with one exception: it never hurts to have a good reputation with your co-workers and your chain of command.

The military’s policy concerning bankruptcy petitions filed by service members in general is one of strict neutrality. Service members have a statutory right to invoke the procedures of the bankruptcy law. No adverse actions may be taken against a member of the military for filing a petition for bankruptcy, receiving a discharge of a debt in bankruptcy, or consolidating his debts under a Chapter 13 bankruptcy plan. Similarly, Commanders and Supervisors may not require members to seek financial counseling assistance before allowing them to file bankruptcy. The assets and protection of rights of individual creditors are matters for the Bankruptcy Court and the military cannot intervene in any matter. Creditors should receive no assistance from the military to collect debts and members should be treated like any individual not in military service.

Nevertheless, the underlying circumstances of a case may involve such mismanagement of personal affairs or dishonorable failure to pay just debts as to become factors that may form a basis for adverse action against the member. However, the mere filing of a petition in bankruptcy, or receiving a discharge in bankruptcy is not considered “mismanagement” or “dishonorable.”