There are many occupations that require you to have a security clearance. They include positions in the military and government, weapons manufacturing, software and aerospace engineering, and more.

When you work in one of these industries or are planning to seek a job there, you may be worried that bankruptcy will jeopardize your career prospects. Can you lose your security clearance because you ran into financial difficulties?

In most cases, the answer is no. While bankruptcy has the potential to cause problems when you rent an apartment or seek a mortgage, Bankruptcy Code section 525 specifically prohibits government employers from denying you a job solely because you filed for bankruptcy. Federal government security clearances are more concerned with issues that could impact your allegiance to the United States, such as:

  • Alcohol and drug use
  • Criminal history
  • Mental health
  • Record of sexual offenses
  • Abuse of IT devices like computers, servers, and cell phones

Other employers will likely focus more on why you filed in the first place. They’re more concerned about any choices or actions you may have intentionally made that caused you to accumulate more debt than you could pay back.

Why did you file for bankruptcy?

In most cases, people file for bankruptcy because they encountered financial problems due to job loss, excessive medical bills, or an expensive divorce.

When you’re being investigated for a security clearance, the employer will likely see such situations as being out of your control. People get sick unexpectedly, divorces cost time and money, and companies lay off workers every day. The U.S. bankruptcy system is designed to help people in these circumstances regain their financial footing.

On the other hand, if you incurred these debts due to overspending, abuse of credit, or a drug, alcohol, or gambling problem, then there may be some concerns about your impulse control. If you incurred credit through fraud and intentionally failed to honor your income tax obligations, then you can expect problems with obtaining a security clearance.

If you accumulated debt due to reasons beyond your control, then bankruptcy can be seen as a responsible way of dealing with debt and starting over. Remaining in debt could make you vulnerable to outside influences and, from the employer’s perspective, increase the likelihood that you might be susceptible to accepting bribes or committing theft or embezzlement.

Before you file, consult with an experienced New York bankruptcy attorney. There may be alternative forms of debt relief available, but if bankruptcy is the only viable solution, your attorney will explain any potential impact on getting or keeping your security clearance, so that you can make an informed decision on whether you want to proceed.

Jayson Lutzky is a Bronx bankruptcy attorney with over 36 years of legal experience. He has helped thousands of highly-satisfied clients over the years and offers free consultations. Call 718-514-6619 to learn more.