What will happen to my security clearance when I file bankruptcy?

Hopefully it will stay the same or get better.  You may lose if it you do NOT file bankruptcy.

Financial difficulties are a warning flag when you are up for security clearance review.  I have filed many bankruptcies for servicemen and servicewomen whose security clearance was in jeopardy because they were in collections and were facing garnishment.  Their local JAG officers advised them that they either needed to work out payment arrangements, file bankruptcy, or lose their security clearance until the issue was resolved.  I am genuinely surprised (but secretly pleased from a competition standpoint), that the JAG offices won’t file free bankruptcies for servicemembers.

This does not mean that filing bankruptcy is a panacea which will save your security clearance, but it will help resolve all of those debts in collections.  A bankruptcy security clearance holder is not as easy to manipulate or bribe as a person facing garnishment desperate for money because of collections.

The odds that the Soviets or the Red Chinese will come pay off your past-due Verizon phone bill in exchange for military secrets are pretty small, but it still makes you a security risk.  (Yes, I still use terms from the 80s).

If you don’t file bankruptcy, you may end up losing your clearance, and whether you’re on active duty or a military contractor, this is a bad thing;  you can’t work.  security clearance

If you would like to hear it from the horse’s mouth, the United States Air Force Academy’s Legal Office has a section on bankruptcy.  It states:

Will Bankruptcy Affect My Security Clearance?
The status of your security clearance can be affected, but it is not automatic. The outcome depends on the circumstances that led up to the bankruptcy and a number of other factors, such as your job performance and relationship with your chain of command. The security section will weigh whether the bankruptcy was caused primarily by an unexpected event, such as medical bills following a serious accident, or by financial irresponsibility. The security section may also consider the recommendations and comments of your chain of command and co-workers. This is an issue that can be argued both ways, so as a practical matter your security clearance probably should not be a significant factor in making your decision about whether to file bankruptcy. The amount of your unpaid debts, by itself, may jeopardize your clearance, even if you don’t file bankruptcy. In that sense, not filing for bankruptcy may make you more of a security risk due to the size of your outstanding debts. By the same token, using a government-approved means of dealing with your debts may actually be viewed as an indication of financial responsibility. Eliminating your debts through bankruptcy may make you less of a security risk. There is no hard and fast answer here, with one exception: it never hurts to have a good reputation with your co-workers and your chain of command.