Security Clearance and Old Charge Off's

Hello all, here is my question. My Secret clearance from the DOD just went inactive in July 2018 due to non-use. In November 2018, I just recently did a settlement for 3 old charge off’s $5,000, $10,000, $21,000. These delinquent accounts were from 2012 due to a lost job, 1-year unemployment, and divorce. These paid charge off’s are due to drop off my CR in 2019. I just received a call today about a job interview for a position that requires a Secret clearance. My question, will those settled charge off’s affect my ability to be cleared?

Only if you don’t report them on the questionnaire. You will be interviewed by an investigator giving you the chance to discuss the old debts and the opportunity to provide documentation they were paid.

Not reporting delinquent debts over 120 days, to include charge offs, triggers an honesty issue.

Are you sure they will drop off in 2019? The last activity as you reported here was 11/18.

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That’s correct. The payoffs will likely cause these to be listed on your reports with a new date.

However, they shouldn’t present a problem if they now show as paid or current.

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The debt was charged off in 2012. Therefore according to the Fair Credit Reporting Act, charge off accounts will fall off all major credit reporting agencies 7 years from the date first reported regardless of paid or not. I was also briefed that by the debt collection department at CC company I owed the debt to. So the paid date does not restart the the clock 7 year clock. Thanks guys I appreciate the responses, it definately took a load of my chest knowing I can recover from a difficult time in my life.

The settlement is going to work in your favor because you have shown that you admit fault and have performed a legal means to settle the debt rather than simply ignore it. While it will still show up on the investigators report, I have very high confidence that the adjudicator will look favorably on this. Just don’t accrue anymore debt and live within your means, you will be good!

I had a Ch7 due to divorce and still got my TS 3 years later. The investigator told me they need to see a cause and effect, and make sure I didn’t max out the credit cards and then go file, or anything else that can show fraudulent intent. The laws for credit are there for the consumer and as long as you do not abuse them you should be fine.

I just got investigated to renew my clearance and the investigator asked me about 4 charge-offs. I told them that those have all been paid off and showing a 0 balance. Should I worry?

I disagree. They won’t necessarily say “closed” or “paid as agreed.” They will say, “settled” or “paid settled,” which not only brings down your credit score but leaves one remaining issue: you’re settling because you broke a contract. Absent addictive or compulsive behavior, e.g., gambling, the government is less concerned with your financial planning than it is with whether you’re satisfying your commitments.

If you take out a $20,000 line of credit, you sign a contract saying you’ll not only pay back the $20,000 but you’ll pay it back with interest. If five years later you’re in a position where you have to try to settle the account for $10,000 or however much, it’s not that you paid something, it’s that you didn’t paid what was agreed. You broke the contract.

It’s the same reason they frown upon bankruptcy. Bankruptcy is made possible under the law—its perfectly legal. But filing for bankruptcy makes it immensely more difficult to get a security clearance. You’re basically asking the court to nullify your commitments at the expense of your creditors.

I had a debt for over $500 just prior to my SF-86 submission. Creditor offered to settle for $360. Told them, “Nope. I’ll pay the full amount.” I didn’t want “settled” or “paid settled” on my credit report and didn’t want to have to explain it to the investigator.

They prefer when you pay off debts outside of a settlement, i.e., the actual amount of the defaulted line of credit. Nonetheless, those are significant enough of payments that they cannot claim they were not good faith efforts to make good on old debts.

But also, it would seem by your timeline that the debts were delinquent when you got your first TS. If so, why be concerned?