In my last article, I discussed the impact that secured debt problems – typically a foreclosure or repossession – can have on your security clearance, as well as what you can proactively do about it. This time, I will address the other issues we see with security clearance holders and debt; namely, credit cards and “payday loans.”
Credit card debt and payday loans are called “unsecured” debt because the creditor doesn’t have recourse against a particular item of property to satisfy the debt. In other words, instead of simply foreclosing on your home or repossessing your car, the creditor has to send a collections agency after you and/or sue you in order to satisfy the debt. That may be appealing in the sense that you aren’t going to wake-up one morning to find your vehicle missing from your driveway. But the apparent decreased urgency of resolution is a façade for security clearance holders – and one that gets many of my clients in trouble. Don’t ignore a debt just because the creditor seems to have forgotten about you.
The Cost-Benefit Analysis of a Credit Card Company
The reality for credit card companies is that they have to make a cost-benefit analysis on whether to pursue a debt. Sending a debt to collection or suing on it involves costs that may exceed the actual value of the debt. And many lawyers are wary of pursuing judgments against debtors who are insolvent (i.e. can’t pay). Unless your credit card debt is in the five figure range, it is very possible that the credit card company will simply shut-off your credit and write the debt off as a business loss. Unfortunately, it’s not that easy for security clearance holders. Credit card debt – even if it becomes time-barred by a statute of limitations (meaning that the creditor can no longer sue you on the debt) – must be resolved in some manner to avoid security clearance problems. That can often be done on terms very favorable to the debtor, such as a negotiated settlement for a fraction of the amount actually owed. I always recommend that security clearance holders with credit card debt retain a consumer debt attorney and/or a credit counseling service to assist in resolving the debts early before they spiral out of control. Keep good records of any correspondence with the credit card companies, a detailed log of the actions you have taken, and all payoff or settlement confirmation letters. A lack of documentation is often the downfall of otherwise responsible security clearance holders.
Payday Loans = Desperate Debtor
Like credit card debt, “payday loans” (not to be confused with “auto title loans”) get many security clearance holders into trouble. There are two reasons for this: (1) the interest rates associated with the loans are often exorbitant, making it difficult for the debtor to ever repay the loan principal; and (2) they create the appearance of desperation, which can cause the government to have concerns both about whether the clearance holder is living beyond his or her means and whether the clearance-holder’s financial situation could increase the risk of bribery. Don’t misunderstand me: I realize that a payday loan is sometimes the only solution for someone with poor credit who needs short-term financial assistance. However, I strongly caution security clearance holders to exhaust all other financial options before turning to a payday loan.
No matter what the nature of your debt, the agency holding your security clearance will want to see that you have taken responsible actions to address it on your own volition – not just because your security clearance is now in jeopardy. Most importantly, the agency will want to see that you’ve learned from your mistakes and have recalibrated your life accordingly.
This article is intended as general information only and should not be construed as legal advice. Consult an attorney regarding your specific situation.
