Debt and Security Clearances: How debt can affect your ability to obtain & keep a security clearance

Do you hold a security clearance, or maybe wish to apply for a position that requires one? Then you’ll need to make sure all your finances are in order. A Department of Defense (DoD) study shows that financial mismanagement is the No. 1 reason clearance applications get denied and current clearances get revoked.

Whether you are a civil employee, a contractor or in the military, debt is and can be, a major issue in regards to security clearances and career advancement. Check out these stats:

• About 3 million government employees and 1.5 million contractors hold some level of security clearance.
• In 2015, Federal workers and retirees owed $3.5 billion in unpaid taxes.
• 9.8 million federal workers were delinquent on tax debt in 2013.
• A VeteransPlus 2015 survey found that the average income-to-debt ratio of 20,000 military personnel surveyed was 3.5 percent over what is considered a healthy amount of debt.

Why is debt a problem?

In short, individuals who have excessive and/or delinquent debt are seen to be a greater security risk than those who are more financially stable. The U.S. government has had problems in the past with security clearance holders leaking secret information, either because they were offered a monetary bride, or were financially blackmailed for information. As such, the federal government has established guidelines to red-flag prospective and current federal employees, military personnel and contractors.

What are the red flags?

Typically debt that has a high debt-to-income ratio and/or debt that is delinquent usually cause bigger problems for security clearance holders/appliers. According to the Consumer Protection Financial Bureau:

“Financial experts say that less than 37 percent debt-to-income ratio is healthy and anything over 43 percent is a sign that financial distress is inevitable, if not imminent.”

However, it’s not just the presence of debt – but its cause, which interests the federal government. The cause of debt can reflect a person’s reliability, trustworthiness and judgment. In short, someone who mismanages their money may also mismanage their responsibilities concerning classified information.

To determine eligibility the DoD created a rule book for federal agencies, called the Adjudicative Guidelines for Determining Eligibility for Access to Classified Information. They are stated below:

§ 147.8Guideline F—Financial considerations.

1. A history of not meeting financial obligations;
2. The presence of deceptive/illegal financial practices (such as: embezzlement, employee theft, check fraud, income tax evasion, expense account fraud, filing deceptive loan statements);
3. Inability or unwillingness to satisfy debts;
4. Unexplained wealth; and
5. Financial problems that are linked to gambling, drug abuse, alcoholism or other issues of security concern.

Why your debt may be less of an issue

If the financial standing of a person with any type of security clearance comes into question, the government provides a process to determine whether it will revoke or maintain that clearance. Even if you do have “excessive” and/or “delinquent debt,” here are some factors that may relieve the government’s concern over your financial standing:

• If the behavior was not recent;
• If it was an isolated incident;
• If the debt was largely beyond the person’s control (e.g., loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation);
• If 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;
• If the individual displayed effort to repay overdue creditors or to otherwise resolve debts.

How does this impact prospective and current security clearance holders?

Due to past events of leaks of secret information and the ease of new technology, the government can now increase its frequency of financial audits on current employees and its reach on background checks for new hires.

Screening process for potential new hires: OF) 306, “Declaration for Federal Employment,” to applicants in order to collect information about an applicant’s history, as an advance screening process. The OF- 306 contains a variety of questions about background information, such as an applicant’s financial history.

Triggers for investigating current clearance holders: OPM has set forth criteria on when financial investigations should be expanded:

• Credit report reflects current aggregate delinquent debt totaling $3,500 or
• Bankruptcy within the past two years or
• Bankruptcy within the past three to five years with evidence of current credit problems.

What to do about your debt

Fret not. With a plan in place, your debt doesn’t have to be a noose around your security clearance’s throat. Here are some general things you can do to show good faith and that you are taking your debt seriously:

• Set-up a payment plan with the creditor.
• Consolidate debt.
• Continue to make payments on time.

Also seek help from outside resources like:

• Get credit counseling from a local nonprofit or if you’re in the military check out VeteransPlus.
• Utilize the Servicemembers Civil Relief Act (for military personnel) to get better deals on interest rates for mortgages and credit cards.
• Set-up a case assessment with a tax or bankruptcy attorney.

Keep a paper record of these efforts to prove later. If you are thinking of applying for a security clearance, it’s important to start sorting out your debt before you apply. If you already have a clearance, then you might consider notifying your superior and assuring him/her that you are working toward a resolution.

If your issues involve IRS debt, a licensed tax attorney can help. Our tax attorneys in Denver, Castle Rock and Colorado Springs help individuals resolve tax debt problems by fighting the IRS when they unlawfully collect tax debts that are beyond the statute of limitations; negotiating a better tax settlement or payment plan and identify problematic behavior so future tax-debt issues are less likely to arise. Call us now to schedule your case assessment.