Bankruptcy as an Option
By Hannah Deardorff, Fort Bliss Legal Assistance Office
Wisdom with finances is a skill that every service member should strive to acquire, and, fortunately, the American military provides one of the most stable, consistent job sources in the world. This has been particularly evident this past year during the COVID-19 pandemic, as many Americans have faced job layoffs and salary cuts, while those in the military need not worry about such hardships.
Yet many service members struggle with financial management and may reach a point where their debts exceed their income. There is no shame in finding yourself in such a situation, as mistakes with finances can offer valuable soil for growth and lessons-learned. It is never too late to begin making wiser financial decisions. For those needing a dramatic “fresh start,” federal law offers relief for those in such a situation through the process of bankruptcy.
While the term tends to carry a negative connotation, it can offer a clean slate for your credit and help you get back to a healthy place financially. If your income is insufficient to pay all of your personal living expenses and your creditors, bankruptcy may be something to consider. A bankruptcy attorney will best be able to provide guidance based on your particular situation. The attorney will account for his/her fees through a payment plan that you will be able to afford. However, Service Members must take the following additional factors into consideration before initiating a bankruptcy.
Filing for bankruptcy does not automatically trigger a revocation of your security clearance nor does a past bankruptcy preclude you from obtaining a security clearance. However, the adjudicators maintain full discretion to revoke or deny a security clearance, and financial issues can signal vulnerability to coercion. The significance of the bankruptcy may depend upon the cause for the filing and the results once the bankruptcy ends. Adjudicators will check credit reports to see how the individual’s credit and financial responsibility improved post-bankruptcy, and this may be given consideration. If you have successfully completed a bankruptcy, your debts have all been discharged, so you may be less susceptible to coercion through bribery in such a way that your clearance will not be impacted. This is one argument the Legal Assistance office could help you make if your clearance is in jeopardy, though the success of this argument cannot be guaranteed.
Don’t hesitate to negotiate with your creditors before opting to file for bankruptcy! See if they are willing to work something out with you, such as a revised payment plan or a surrender of the items leading to the debt. People are often surprised how willing creditors are to work with them. An amended payment plan or refinancing agreement is often in a creditor’s best interest, because it typically allows them to recover more for the debt than if you file bankruptcy. This is a significant benefit to you as well, because it may allow you to avoid having to file bankruptcy.
Debt consolidation services are also usually available. However, be cautious and do your research before paying for any debt consolidation services. Scams are common in this industry.
If you face revocation of your security clearance for financial considerations, a Legal Assistance attorney at the Fort Bliss Legal Assistance Office can assist you in drafting a letter of response once you receive a notice of “Intent to Deny Security Clearance.” A Legal Assistance attorney can draft a letter of response if your situation meets one or more of the following criteria: (1) the behavior supporting the denial was (a) not recent; (b) an isolated event; or (c) due to circumstances beyond your control; (2) you received or are receiving counseling for the problem, and there are clear indications that the problem is being resolved or is under control; (3) your sudden affluence resulted from a legal source [not applicable if you have filed bankruptcy]; and/or (4) you have initiated a good-faith effort to repay overdue creditors or otherwise resolve debts.
The LAO does not file bankruptcies. However, our attorneys can refer you to a local bankruptcy attorney who can discuss your case and options with you. Bankruptcy attorneys typically offer a free consult, and that attorney will be able to more fully advise you on whether bankruptcy is a beneficial option, given your specific financial situation.