Charged Off Debts Can Cause Clearance Denial or Revocation
There is a common misperception among security clearance applicants regarding the requirement to disclose or resolve charged off debts. Many believe when creditors charge off a debt then they are no longer indebted. Not true! Here is a simple definition of the term: a charge-off is a debt that a creditor has given up trying to collect on after you’ve missed payments for several months. The creditor has reported it to the credit reporting agencies as a charge-off account. This does not mean you no longer are responsible for it. Oftentimes, the debt is sold to a third party collection agency who may legally try to obtain full payment or a partial payment settlement. As an example of this, here is the summary of a recent Defense Office of Hearing and Appeals (DOHA) case involving financial issues:
The applicant was denied clearance eligibility based on financial considerations and personal conduct. The Statement of Reasons (SOR) cited debts totaling over $36,000 that included: a repossessed vehicle of over $14,000; three charged-off credit card debts totaling over $11,000; and a charged-off delinquent electronic payment of about $550. He failed to follow through on promises he made to file bankruptcy or resolve the charged off debts, instead, arguing he did not owe on the charged off accounts since they were from several years ago and the creditors had stopped pursuing payment. Factors considered by the judge in favor of the applicant included his military service and that he held a clearance for 30 years.
However, there was not enough mitigating evidence to show the applicant acted responsibly in addressing his delinquent debts, even after being issued the SOR and having a year to act on the debts before the DOHA hearing. As always, the general standard is that a clearance may be granted only when clearly consistent with the interests of the national security and any doubt concerning an applicant being considered for national security eligibility will be resolved in favor of the national security. Financial issues remain the top issue in security clearance denials. Applicants with issues should take action to mitigate any concerns prior to applying for a clearance.