Yes, sorry, I meant 13, not 11 or 7.
A bankruptcy in and of itself will not terminate your clearance. It is the responsible thing to do protecting one’s clearance at times. The behavior leading to bankruptcy and what follows can hurt you. But if you are deep debt and cannot cover the bills you may make a decision you normally would not make, maybe sell classified material? That is how being in debt works against you. It can be perceived you are a risk for that activity. Even if you never would consider that. Filing for bankruptcy, depending on type can either reorganize the debt, consolidate it in one payment or eliminate some or all of it. Yes the credit score drops. It also recovers if you stay financially clean. One applicant was just filing and I could not submit. 6 months later she was a 680 FICO and she cleared. She is still with us and well beyond a 740 now. Please do discuss this with a bankruptcy attorney and a clearance lawyer. Once you legally discharge all or a portion of the debt the pressure is reduced on you. Yes we all want to faithfully pay what we owe in life and it feels like we are cheating. But there are times when life throws a few curveballs and overwhelms us.
We’ve been fairly lucky so far, I think, because all of our creditors are working with us, which is part of the reason I haven’t hit submit on the Ch 7 or 13. We’re in a tough place because I’m out of work again, but filing the Ch 13 doesn’t really solve your debt, it just gives the responsibility over to an attorney, you pay him, and he pays your creditors (while charging you at the same time). And I have consulted with a debt management group, who would do that very same thing. You pay them- they send money to your creditors. My PR is going to have to include all of this, of course, but given the circumstances and our ongoing mitigation work, I am counting on the system to work in my favor, as none of our debts or issues were the result of poor spending habits, they were all the result of long periods of unemployment and my wife’s medical condition.
Nonetheless, the IRS requires one to report “forgiven” debts as taxable income!
Based on that last sentence, you have a mitigating factor. Get out in front of it on SF86 where they ask the question and let the investigator know. Honesty is the best policy.
Of course, under a Chapter 13 plan, usually your debts aren’t repaid in full (except maybe for your secured obligations).
Generally you only pay off your debts in part, during the 36 or so months that the plan usually runs for.
Just wanted to say another big thanks to everyone who’s provided input here, it’s very much appreciated. Clearance holders have a very unique and specific set of concerns when it comes to career maintenance and progression, so it’s good to know there’s a place to get information from people with experience.
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Not all “forgiven” debt has to be reported to the IRS especially if you performed a short sale under the HAFA government program.
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Yes . . . I do about 150-200 tax returns a year and many 1099-C’s. Depending on ALL of the circumstances, there are ways to avoid this.
When negotiating with a creditor, they can agree not to issue a 1099-C but there are also ways to mitigate the imputed income.
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For discharged debt where a 1099-C was filed by the creditor, it might be worth looking into IRS Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment). This kept me from having to pay taxes on discharged student loan debt, but should work on some other forms of discharged debt as well. Of course, there are caveats and specific qualification criteria that should be referenced before submitting.
One theme seems consistent when reading the appeals to clearance revocations. If it is explainable, it is understandable. For most, we are no more than one bad car accident or major medical event away from bankruptcy. If you are in a two income family and a spouse loses employment it is explainable and understandable to fall behind. If you have a documented trail of remaining in contact with the creditors, seeking employment, etc you can prove you are engaged. Those who end up revoked and stay revoked (appeal denied) are the ones not getting into a repayment plan, not seeking employment, etc. I have seen where they gave explicit instructions to get in a repayment plan with 10 creditors, and the subject only accomplished a plan with 3 or 4. They made clear they were given instructions and a chance to demonstrate good will. The failure to do so is why the clearance was pulled. Getting financial counseling now is a positive step to show you are taking all action necessary.
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Your words are both enlightening and encouraging. We, in my family, have seemingly fallen victim to Job’s test. A tragic (and, in the spirit of candor, expensive) medical diagnosis of my wife’s condition, followed by not one, not two, not even three or four, but FIVE extended periods of either unemployment or underemployment, all of which now reflect in the ruin that for decades was a pristine credit report. It has been emotionally and financially devastating, and strong enough words don’t exist to describe how it has strained us. I worry now that a BI will have little sympathy, point to the credit record, and recommend a revocation or suspension of my clearance, which will effectively end my career and our lives. I know this all sounds dramatic, but none of this is fabricated. And while I know full well we aren’t the only people in a similar situation, it remains very daunting and terribly stressful for us.
KD…no matter what…keep pressing forward. An old story but relevant. A mule on a farm fell into a deep hole.
The crusty old farmer figured it was just easier to put dirt in the hole and bury the mule. The mule panicked and was ready to surrender and give in to death. Somewhere deep inside he got the encouragement he needed, shook off the dirt, and stepped up. With each shovelful of dirt thrown his direction, he shook it off, managed the best he could under the circumstances, and stepped up. Eventually the hole was filled in and the mule stepped up…and out of the hole. No matter what life throws at you…shake it off, step up. Make every effort to provide comfort to your family, adjust where you can adjust. If you need sell an old camper or boat to keep money flowing, do so. Downgrade the family car to free up some cash? Make it happen. Establish contact with each creditor and see if you can at least pause the payments (in writing after talking) and get some relief. Seek a clearance lawyer and a bankruptcy attorney (get a recommendation from the clearance lawyer). You need one who understands the impact of credit on clearances. I know for a fact the clearance folks will work with you and they understand life can throw major blows your way. By demonstrating you are in contact with and working with each creditor…you are making the pre-emptive move to be pro active. Each step, each communication with each creditor is another load of dirt you shaken off and stepped up on top off. There will be minor victories and set backs. Bankruptcy, though distasteful for many may be the smart option. As it applies to clearances it is considered the right move. Desperate people may make decisions they would not normally make. Best to approach this from a methodical angle of proving in writing you are doing everything in your power to make this work. On a personal angle, many years ago in basic military training, after listening to the TI tell me he was going to kick each of us out so we may as well quit…and I confess I was emotionally spent and considered it. Somewhere deep inside I decided if they were sending me home I would leave my bloody fingernail scrapings in the hallway. There was no way I was quitting. Over time things just worked out. I stayed, I wasn’t kicked out and I most certainly did not quit. I shook it off and stepped up. 20 years later I retired from active duty at the highest rank I could obtain. Shake it off. Step up. You got this.
Something that comes to mind when reading all these heartbreaking stories. The amount of stress that these background investigations puts on all of us, to include folks with no issues that have to wait for years to get a clearance, is a major offense to civil servants. With all of the crap going on in the government from shutdowns to affairs and everything in between, I sincerely think that a complete overhaul in needed. Why should someone who has served the public for better than most of their life have to go through this? As a disabled veteran that joined the Marines at 17, did several tours in harms way, seen things no child should have seen, and served the federal government over 25 years. This is lunacy. KD, hold your head up and if it doesn’t work out for you, don’t let it destroy your life. You do not need this, you are a remarkable person and you will persevere. I did when I had nothing. Bless you and your loving wife. At this point I just do not care anymore, if my service to my country is no longer respected because of some unpaid debts, the feds can stick it.
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I understand how you feel completely and thank you for your service.
But, when looking at past security breaches most are related to financial issues. It seems like few turn against their country for ideological reasons. Most do so for financial reasons. It’s difficult to tell who is a risk and who isn’t.
An overhaul IS needed. I think that more of the investigation could be done on line and the adjudication rules could be rewritten. Too often, I think that adjudicators deny clearance and issue an SOR just to kick the ball down the road to a judge. This is wrong and clogs up the back end of the system.
I don’t think the investigators are gleefully giving any stress. They are merely collecting the required info, noting potential red flags created by the applicant, and sending it to adjudication. This is where the totality of the situation is weighed. Granted human differences will always impact how the decision is made in the end. I have had clearance call me back and infer I should reconsider pulling a package for 6 months. They cannot tell me anything specific, but when they tell me there is a far greater chance of approval if I wait the 6 months…I pull it back. I want cleared people in the seat. Reliable people. The right people. If clearance feels a person has too many risk areas I accept that determination.
I think that’s my actual concern with how things work now. TONS of people I know, some with VERY high level clearances, have suffered or are suffering from financial difficulties, it’s one of the most common issues faced by working families. So using that as the single highest reason to deny or revoke/suspend a clearance doesn’t make a lot of sense. Gambling, I get it. Irresponsible spending, sure. But not tragedy. That isn’t fair, or even humane.
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There is a difference between experiencing life issues (divorce, medical issues, unemployment) and spending more money than you make just because you have to have the latest model car, phone, vacation, etc… Most of the cases that involve financial issues result in a denial because they either have overextended themselves, walked away from valid debts, failed to file or pay taxes or failed to take responsible actions. When you enter into a financial agreement with a creditor you are saying you will pay them monies owed. If you fail to do so then you are not keeping your word and are susceptible to coercion. Do we want people like that accessing classified information?.
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And it’s that reasoning that I’m hoping will keep me in good stead with an adjudicator. None of those things apply in our situation, aside from huge medical debts and extended periods of unemployment. At this point, we’re barely hanging on to the house.