top of page

Debt Relief Strategies for Security Clearance

A yellow envelope marked "top secret"

Getting a Security Clearance with Debt

If you're in or working with the United States Military or the federal government, you may face significant challenges in getting or maintaining your security clearance if you have significant debt. This is because having a security clearance allows you to access sensitive information, and individuals in financial distress may be seen as vulnerable to bribery or other illicit activities. The amount of debt itself is not the real issue, instead the "problem" is typically framed as a question of whether you have the ability to conduct yourself responsibly, which includes responsible financial management and not taking on more debt than you can afford. By addressing and resolving your debts, you can demonstrate responsibility and financial stability and improve your chances of obtaining or maintaining your security clearance.

Why Does Debt Affect Your Security Clearance?

There are a couple of reasons why debt can have a negative impact on your security clearance.

  • First, your credit report is a key indicator of your financial responsibility. Excessive debt, late payments, and defaults can all reflect poorly on your ability to manage your finances.

  • Additionally, a high debt-to-income ratio can make it difficult to meet your financial obligations, which can lead to financial stress and potential vulnerability to unethical behavior.

  • Finally, if you have taken out personal loans or other forms of debt, it can raise concerns about your judgment and decision-making skills.

By addressing your debts and developing a repayment plan, you can demonstrate your commitment to improving your financial situation and increase your chances of maintaining your security clearance.

Guideline F: Financial Considerations and Delinquent Debt

Guideline F was established by the Department of Justice, and it explains that financial considerations and delinquent debt can impact security clearances. This guideline acknowledges that folks with excessive debt or a history of financial mismanagement may be more likely to engage in illegal activity or divulge sensitive information. The guideline specifically highlights concerns regarding delinquent debt, such as unpaid credit card bills or outstanding balances.

How Much Debt is Too Much Debt for a Security Clearance?

There isn't a magic number to guide you here, instead you must consider your debt to income ratio, which is your total monthly debt divided by your current monthly income. But you can't stop there, because the type of debt you have is also considered along with your debt-to-income ratio.

For instance, let's say that one person has a debt-to-income ratio of fifty percent and another person has a debt-to-income ratio of seventy percent, it's possible for the person with the lower debt-to-income ratio to face challenges in getting or maintaining a security clearance while the other individual may face no troubles at all.


If the person with the lower debt-to-income ratio has all credit card and personal loan debt, and they're behind on their payments then they appear to be irresponsible and financially vulnerable. On the other hand, the person with the higher debt-to-income ratio may have debt that's primarily a mortgage and student loans with a small amount of credit card debt sprinkled in.

Get Out of Debt

If your debt has you worried about getting or keeping your security clearance, then the best solution is finding a way to get out of debt. Our Austin bankruptcy lawyer has worked with folks across Central Texas to help them get out of debt to keep a security clearance or get a security clearance.

What Are My Options for Debt Relief

"Debt Relief" written on notepad

A lot of folks spin their wheels trying to figure out just what their options are when it comes to debt relief, so we've compiled a quick list of your options and discuss the pros and cons of each below. Here are your debt relief options:

  • Debt Settlement

  • Debt Management or Credit Counseling

  • Debt Consolidation

  • Chapter 7 Bankruptcy

  • Chapter 13 Bankruptcy

Debt Settlement and Debt Management (aka "Credit Counseling")

Debt settlement and debt management plans are fairly similar in how they operate, but they achieve debt relief in different ways. They both operate by having you make monthly payments to a debt settlement company or debt management company. While you pay this company, you stop paying all of your creditors. This results in you becoming delinquent on your debts and makes it easier for the company you hired to try reaching a settlement agreement with each of your creditors. The primary difference between debt settlement and debt management is that debt settlement attempts to reduce the principal balance you owe while debt management attempts to reduce and eliminate late fees (among others) and interest.

The first drawback with these options is that creditors aren't required to agree to a settlement. We frequently work with clients who chose one of these options only to end up getting sued by a creditor who refused to settle. Other times folks will complete their program with one of these types of companies and then learn that one or more of their creditors never agreed to settle, and now their balance is significantly higher due to penalties and interest.

Another drawback is that all of the debt that's forgiven is taxable as income. Most creditors will write off the loss and send you a 1099 at the end of the year, and you'll be required to claim the amount that was forgiven as additional income.

Debt Consolidation

Debt consolidation is another option that frequently comes up as a way to help folks get out of debt. The idea is to get a loan with a lower interest rate than the rest of your debt, and then use the money from the loan to pay off all of your debt. That way you only have one debt that you owe.

But here's the deal, most of the time folks who are looking for ways to get out of debt are already in a situation where they likely won't qualify for a debt consolidation loan. The folks who do qualify for these types of loans are often not that bad off yet. So to talk about debt consolidation like it's a viable solution for people dealing with overwhelming debt is a bit dishonest.

Now, we frequently see folks who used debt consolidation and that decision actually led to things getting worse. Here's what happens: folks have some debt but they think they can get it under control so they take out a debt consolidation loan. When they get the money for the loan they pay off their credit cards and leave the accounts upon. Before too long they start using their credit cards again, and after a while they realize that their debt has doubled and they can no longer afford to keep paying for it.

Chapter 7 Bankruptcy vs Chapter 13 Bankruptcy

A bankruptcy filing is one of the fastest and cheapest forms of debt relief and an excellent way to get rid of unsecured debt in a short time. There are two main types of bankruptcy for individuals: Chapter 7 bankruptcy and Chapter 13 bankruptcy.

Chapter 7 bankruptcy involves is usually over in a short period of time, typically about four to six months, and there's no repayment plan. The idea behind Chapter 7 is that the bankruptcy trustee can liquidate (take and sell) any nonexempt property to use the proceeds to distribute to your creditors. However, the vast majority of Chapter 7s are "no asset" cases, meaning that all of the debtor's property is protected using bankruptcy exemptions and there's nothing for the trustee to liquidate.

Chapter 13 bankruptcy, on the other hand, involves creating a repayment plan to repay a portion of certain debts and then discharge the rest at the end of the three to five year payment plan. You must have regular income and it's often a good idea for folks looking to avoid foreclosure or repossession.

One of the benefits of the bankruptcy code is the protections you get when you file. Particularly, many folks are relieved when the automatic stay goes into place as soon as they file bankruptcy, because it protects you from continued attempts at debt collection and persistent harassment from debt collectors.

The decision to file a bankruptcy case depends on an individual's specific financial situation and goals. For folks who are ready to move on and looking for a fresh start, filing bankruptcy can be a great solution. The type of bankruptcy you choose is often an easy decision, as most folks need to qualify to file Chapter 7 based on their income or passing the means test. Consulting with a trusted Austin bankruptcy attorney can provide guidance on the best course of action and help you understand the potential impact bankruptcy can have on your finances and your security clearance.

Save Your Security Clearance - Talk with a Bankruptcy Lawyer

If you're facing financial trouble because of debt and it's impacting your security clearance, filing bankruptcy can be a great way to get out of debt and protect your security clearance. Filing a petition with the bankruptcy court requesting bankruptcy relief can do more than just help you make ends meet, it can help wipe the slate clean and give you a fresh start. Talking with our Austin bankruptcy attorney allows you to get legal advice tailored to your specific situation so you can make the best decision for you. Give us a call today to schedule your free confidential consultation or click here to book online.

9 views0 comments


bottom of page