Applying or reapplying for a security clearance with delinquent debt is like intentionally walking into a wall. The outcome is both predictable and avoidable by changing course. Changing course doesn’t necessarily mean forgoing the application; however, it may mean pausing the application until the delinquent debt is resolved. But what counts as resolution? Is paying delinquent debt in full – an insurmountable obstacle for some federal employees and contractors – the only way to resolve debt to the government’s satisfaction, or can debt also be negotiated for a lesser payoff amount?
Security Clearance Guidelines and Debt Resolution
Fortunately, the Security Clearance Adjudicative Guidelines make no distinction between paying delinquent debts in full and negotiating a resolution. Instead, they require, in pertinent part, “a good-faith effort to repay overdue creditors or otherwise resolve debts[.]”
In other words, personnel security officials aren’t debt collectors. Their role is to ensure an applicant isn’t over-leveraged and thus at a heightened risk for bribery or espionage. Secondary to that issue is the question of character. Does a delinquent debtor demonstrate the kind of reliability and trustworthiness expected of one entrusted with classified information?
Why Debt Negotiation is Best Left to Professionals
Negotiating delinquent debts can satisfy both concerns. However, the negotiation process is best left to professionals like a consumer debt attorney or, in some cases, a reputable credit counselor. State laws vary widely on consumer debt resolution and traps exist for the unwary. An applicant attempting to negotiate a debt might inadvertently re-start a statute of limitations (irrelevant in security clearance cases, but important in other contexts) or forfeit other legal rights. That’s to say nothing of the potential for a good-faith dispute, which exists in the eyes of personnel security officials in cases of identity theft, fraud, or where documentation supports a different amount owed than claimed by the creditor or a failure to deliver promised goods/services.
The Risks of Debt Validation Letters
It is important to understand, however, that neither a good-faith dispute nor a negotiated resolution is the same as merely blitzing creditors with so-called “debt validation” letters. Many companies advertise credit history cleanup/credit score improvement whose only service is demanding creditors prove the legal validity of debts – even those the debtor privately knows to be legitimate. If a creditor can’t prove ownership of the debt or that the debtor owes the funds, they may be legally required to remove the debt from the debtor’s credit report.
Why Credit Report Cleanup Isn’t Enough for Clearance
That may sound appealing – and it may have merit in the civil law context – but, like a statute of limitations, it is typically unhelpful and irrelevant in the security clearance process. A debt isn’t “resolved” within the meaning of the Security Clearance Adjudicative Guidelines merely because it no longer appears on the applicant’s credit report. Moreover, while some agencies will accept proof of a payment plan as evidence of resolution, the applicant must show a track record of repayment under such a plan, which takes time. The finality of a lump sum settlement is almost always better.
Patterns of Irresponsible Borrowing
A final caveat is that negotiated resolutions can prove less helpful if the applicant’s credit history shows a pattern of taking on debt that the applicant appears to have no intention of repaying. These scenarios are more challenging to defend, but negotiated resolutions may still be the preferred option when the alternative is bankruptcy.
This article is intended as general information only and should not be construed as legal advice. Although the information is believed to be accurate as of the publication date, no guarantee or warranty is offered or implied. Laws and government policies are subject to change, and the information provided herein may not provide a complete or current analysis of the topic or other pertinent considerations. Consult an attorney regarding your specific situation.
