ISCR Case 03-23502.h1

Case Headnote

ISCR Case No. 03-23502.h1

deniedJan 17, 2006· Hon. Paul J. Mason· hearing

Summary

A 39-year-old engineer technician was denied a security clearance due to unmitigated financial issues under Guideline F. The applicant had a nine-year history of financial problems, including two Chapter 7 bankruptcy discharges. The first bankruptcy in 1996 discharged $15,000 in debts, and a second in 2005 discharged most of the 28 delinquent debts totaling $34,746, which included medical bills, insufficient fund checks, and utility accounts.

While the applicant cited a divorce and a three-month illness in 2003 as contributing factors to her financial difficulties, and claimed to have paid $7,000 in restitution, documentation only supported $283 in payments to creditors. Despite stating an intention to pay debts and having a monthly net remainder of over $3,385, there was insufficient evidence of sustained action to resolve her financial obligations.

The judge found that the applicant's repeated bankruptcies and lack of documented payments demonstrated an ongoing pattern of financial irresponsibility. The second Chapter 7 discharge, rather than indicating a fresh start, was seen as compelling evidence of unresolved financial problems, leading to the denial of the security clearance.

Why the Applicant Was Denied

The applicant has a nine-year history of financial problems that has not been mitigated.
The applicant provided documentation showing payment of only $283 to creditors, contrary to her claim of $7,000 paid.
The second Chapter 7 bankruptcy discharge does not demonstrate a sustained record of financial responsibility.

Conditions Referenced

Disqualifying

E2.A6.1.2.1raisedA History of Not Meeting Financial Obligations
E2.A6.1.2.3appliedInability or Unwillingness to Satisfy Debts

Mitigating

E2.A6.1.3.3rejectedConditions That Resulted in the Behavior Were Largely Beyond the Person's ControlThe divorce occurred nine years ago and the illness was only for three months.
E2.A6.1.3.4rejectedThe Person Has Received or Is Receiving Counseling for the Problem and There Are Clear Indications That the Problem Is Being Resolved or Is Under ControlThe applicant has received no counseling and there is no indication the problem is under control.
E2.A6.1.3.6rejectedThe Individual Initiated a Good-faith Effort to Repay Overdue Creditors or Otherwise Resolve DebtsThe applicant's financial problems have not been resolved despite the bankruptcy discharge.

Key Rule Quoted

“An inability to pay bills in a timely fashion manifests poor judgment that may disqualify an applicant from security clearance access.”
— Department of the Navy v. Egan, 484 U.S. 518, 531 (1988)

Procedural Posture

SOR issuedDec 3, 2004
Answer filedFeb 12, 2005
Hearing held—Decided on written record.
Decision dateJan 17, 2006

Cite For

Denial of Clearance Due to Unresolved Financial Issues Under Guideline F
Insufficient Evidence of Financial Responsibility Despite Bankruptcy Discharge
Impact of Documented Payment History on Financial Considerations

Editorial summary generated for research. Not legal advice; not a prediction. Verify against the full decision before relying on any quoted language.

¶	Allegation	Finding	Type	Response	Disqualifying (¶19)	Mitigating applied (¶20)	Mitigation
1.a	Applicant provided no reasons for her first bankruptcy (subparagraph 1.a.) in 1996 except to say she joined her former husband's Chapter 7 bankruptcy petition in September 1996; on January 29, 1997, $15,000.00 in delinquent debts were discharged.	Against Applicant	Bankruptcy Filing	Unknown	—	—	—
1.b	The utility bill identified in subparagraph 1.b. was charged off as a bad debt in February 1998.	Against Applicant	Utility or Phone Debt	Unknown	—	—	—
1.c	Applicant filed a second Chapter 7 petition on February 3, 2005, and most of the SOR debts, except for the past due debts identified in subparagraphs 1.c., 1.f., 1.i., 1.j., and 1.k., were discharged in July 2005.	Against Applicant	Bankruptcy Filing	Unknown	—	—	—
1.d	The SOR lists 28 delinquent debts. The debts include medical debts, insufficient fund checks and utility accounts.	Against Applicant	Unspecified Financial	Unknown	—	—	—
1.e	The total past due amount listed in the SOR is $34,746.00. $34,746	Against Applicant	Unspecified Financial	Unknown	—	—	—
1.f	Applicant's failure to take any documented action to pay off some of the debts by June 2003 as she had promised invokes FC DC E2.A6.1.2.3. (inability or unwillingness to satisfy debts) since there was a promise to pay without subsequent action to make good on that promise.	Against Applicant	Unspecified Financial	Unknown	—	—	—
1.g	Applicant's reference to a divorce and a three month illness in July 2003 activates FC MC E2.A6.1.3.3. (the conditions that resulted in the behavior were largely beyond the person's control) because a divorce or medical problems are two conditions that can interfere with a person's bill-paying ability.	Against Applicant	Unspecified Financial	Unknown	—	—	—
1.h	The only documentation provided by Applicant indicating payment to creditors is the $794.00 to some creditors ($511.00 to unidentified creditors) in April 2004, far short of the $7,000.00 claim she made in her answer to the SOR. $794	Against Applicant	Unspecified Financial	Unknown	—	—	—
1.i	The law recognizes that an applicant may resolve her delinquent problems through a Chapter 7 discharge. However, even though the discharge entitles her to a fresh start in handling her finances, the discharge also means her unsecured creditors do not get repaid.	Against Applicant	Bankruptcy Filing	Unknown	—	—	—
1.j	Given her 1997 bankruptcy discharge followed by subsequent financial problems leading to a second Chapter 7 discharge in February 2005, and the lack of evidence showing a dramatic change in her financial habits, her financial problems are likely to recur.	Against Applicant	Unspecified Financial	Unknown	—	—	—
1.k	The mitigation Applicant receives under FC MC E2.A6.1.3.3. is limited by the absence of more documentary evidence to support her claim of having paid almost $7,000.00 to creditors.	Against Applicant	Unspecified Financial	Unknown	—	—	—
1.l	Applicant provided documentation showing payment of $283.00 to only seven creditors. $283	For Applicant	Unspecified Financial	Unknown	—	—	—
1.m	Applicant has a nine year history of financial problems that has not been mitigated.	For Applicant	Unspecified Financial	Unknown	—	—	—
1.n	Applicant's three month illness, involving two surgeries, undoubtedly hampered her ability to pay her bills, and is substantiated by the fact the medical debts amounted to approximately 1/3 of the debt she discharged in bankruptcy in February 2005.	Against Applicant	Unspecified Financial	Unknown	—	—	—
1.o	Though Applicant stated an intention in May 2003 to pay her debts, and stated she had a net remainder of more than $3,385.00 every month after payment of her expenses, there is no documentation of any action taken until May 2004 when Applicant supplied some payment accounts dated April 19 and 22, 2004, that she had paid about $794.00 on her overdue debt to some creditors while trying to settle with other creditors.	Against Applicant	Unspecified Financial	Unknown	—	—	—
1.p	Applicant's unexplained financial problems began before 1996, and led to a Chapter 7 discharge of $15,000.00 in January 1997.	Against Applicant	Unspecified Financial	Unknown	—	—	—
1.q	Applicant has provided information indicating she is not using credit cards and she is writing fewer checks, these declarations do not convince me she has her financial house in order.	For Applicant	Unspecified Financial	Unknown	—	—	—
1.r	The fact that she has had most of her debts discharged a second time under Chapter 7 in July 2005 provides compelling evidence of ongoing financial problems that have not been resolved.	For Applicant	Unspecified Financial	Unknown	—	—	—
1.s	The applicant's nine year period of financial difficulties requires a sustained demonstration of financial responsibility before considering a favorable change has been made in her financial habits.	Against Applicant	Unspecified Financial	Unknown	—	—	—
1.t	The applicant's financial problems are likely to recur.	Against Applicant	Unspecified Financial	Unknown	—	—	—
1.u	Applicant denied subparagraph 1.u., claiming she had paid the debt.	Against Applicant	Unspecified Financial	Denied	—	—	—
1.v	Applicant admitted the remaining debts.	Against Applicant	Unspecified Financial	Admitted	—	—	—
1.w	Applicant indicated an intention to pay the smaller bills by June 2003.	Against Applicant	Unspecified Financial	Unknown	—	—	—
1.x	Applicant's sworn statement (May 13, 2003) concludes with a personal financial statement (PFS) showing she was current on two creditors and had a monthly net remainder of $3,385.00.	Against Applicant	Unspecified Financial	Unknown	—	—	—
1.y	Applicant's response to the first creditors identified in the interrogatories (GE 9, subparagraph 1.u. of the SOR) is "The account has been turned over to a local Debt Collection Agency. Please see attached information re: consistent payments."	Against Applicant	Unspecified Financial	Unknown	—	—	—
1.z	After examining the enclosures (the enclosures are either dated April 19 and 22, 2004), there are payment ledgers that show payments of $511.55 to an unidentified creditor, but I do not find documentary proof the 1.u. creditor was paid.	Against Applicant	Unspecified Financial	Unknown	—	—	—
1.aa	In response to the insufficient funds checks (subparagraphs 1.aa. and 1.bb.), Applicant stated the debts were turned over to the local collections service.	Against Applicant	Unspecified Financial	Unknown	—	—	—
1.bb	She recommended review of enclosed forms supposedly showing proof of payment. The enclosed forms show Applicant was contacted on April 22, 2004 about certain debts, including 1.aa. and 1.bb. The only indicators showing the debts were paid is the handwritten letters "pd" next to the insufficient check accounts.	Against Applicant	Unspecified Financial	Unknown	—	—	—
1.cc	Applicant voluntarily returned a car (subparagraph 1.cc.) to the dealer because the family moved to the southwestern part of the United States for health reasons.	Against Applicant	Auto Loan Debt	Unknown	—	—	—
1.dd	Additionally, her husband thought the dealer breached the contract as they had promised not to require payments until 45 days after the purchase. Instead, they required payments 15 days after the purchase.	Against Applicant	Unspecified Financial	Unknown	—	—	—
1.ee	Applicant claims she intended to establish a payment plan to the 1.cc. and 1.dd. creditors when she had the money.	Against Applicant	Unspecified Financial	Unknown	—	—	—
1.ff	You petitioned for Chapter 7 bankruptcy on about February 3, 2005 in the United States Bankruptcy Court, District of Arizona. Your dischargeable debts were discharged on or about July 2005.	Against Applicant	Bankruptcy Filing	Unknown	—	—	—

Allegation

Finding

Type

Response

Disqualifying (¶19)

Mitigating applied (¶20)

Mitigation

1.a

Applicant provided no reasons for her first bankruptcy (subparagraph 1.a.) in 1996 except to say she joined her former husband's Chapter 7 bankruptcy petition in September 1996; on January 29, 1997, $15,000.00 in delinquent debts were discharged.

Against Applicant

Bankruptcy Filing

Unknown

—

1.b

The utility bill identified in subparagraph 1.b. was charged off as a bad debt in February 1998.

Against Applicant

Utility or Phone Debt

Unknown

—

1.c

Applicant filed a second Chapter 7 petition on February 3, 2005, and most of the SOR debts, except for the past due debts identified in subparagraphs 1.c., 1.f., 1.i., 1.j., and 1.k., were discharged in July 2005.

Against Applicant

Bankruptcy Filing

Unknown

—

1.d

The SOR lists 28 delinquent debts. The debts include medical debts, insufficient fund checks and utility accounts.

Against Applicant

Unspecified Financial

Unknown

—

1.e

The total past due amount listed in the SOR is $34,746.00.

$34,746

Against Applicant

Unspecified Financial

Unknown

—

1.f

Applicant's failure to take any documented action to pay off some of the debts by June 2003 as she had promised invokes FC DC E2.A6.1.2.3. (inability or unwillingness to satisfy debts) since there was a promise to pay without subsequent action to make good on that promise.

Against Applicant

Unspecified Financial

Unknown

—

1.g

Applicant's reference to a divorce and a three month illness in July 2003 activates FC MC E2.A6.1.3.3. (the conditions that resulted in the behavior were largely beyond the person's control) because a divorce or medical problems are two conditions that can interfere with a person's bill-paying ability.

Against Applicant

Unspecified Financial

Unknown

—

1.h

The only documentation provided by Applicant indicating payment to creditors is the $794.00 to some creditors ($511.00 to unidentified creditors) in April 2004, far short of the $7,000.00 claim she made in her answer to the SOR.

$794

Against Applicant

Unspecified Financial

Unknown

—

1.i

The law recognizes that an applicant may resolve her delinquent problems through a Chapter 7 discharge. However, even though the discharge entitles her to a fresh start in handling her finances, the discharge also means her unsecured creditors do not get repaid.

Against Applicant

Bankruptcy Filing

Unknown

—

1.j

Given her 1997 bankruptcy discharge followed by subsequent financial problems leading to a second Chapter 7 discharge in February 2005, and the lack of evidence showing a dramatic change in her financial habits, her financial problems are likely to recur.

Against Applicant

Unspecified Financial

Unknown

—

1.k

The mitigation Applicant receives under FC MC E2.A6.1.3.3. is limited by the absence of more documentary evidence to support her claim of having paid almost $7,000.00 to creditors.

Against Applicant

Unspecified Financial

Unknown

—

1.l

Applicant provided documentation showing payment of $283.00 to only seven creditors.

$283

For Applicant

Unspecified Financial

Unknown

—

1.m

Applicant has a nine year history of financial problems that has not been mitigated.

For Applicant

Unspecified Financial

Unknown

—

1.n

Applicant's three month illness, involving two surgeries, undoubtedly hampered her ability to pay her bills, and is substantiated by the fact the medical debts amounted to approximately 1/3 of the debt she discharged in bankruptcy in February 2005.

Against Applicant

Unspecified Financial

Unknown

—

1.o

Though Applicant stated an intention in May 2003 to pay her debts, and stated she had a net remainder of more than $3,385.00 every month after payment of her expenses, there is no documentation of any action taken until May 2004 when Applicant supplied some payment accounts dated April 19 and 22, 2004, that she had paid about $794.00 on her overdue debt to some creditors while trying to settle with other creditors.

Against Applicant

Unspecified Financial

Unknown

—

1.p

Applicant's unexplained financial problems began before 1996, and led to a Chapter 7 discharge of $15,000.00 in January 1997.

Against Applicant

Unspecified Financial

Unknown

—

1.q

Applicant has provided information indicating she is not using credit cards and she is writing fewer checks, these declarations do not convince me she has her financial house in order.

For Applicant

Unspecified Financial

Unknown

—

1.r

The fact that she has had most of her debts discharged a second time under Chapter 7 in July 2005 provides compelling evidence of ongoing financial problems that have not been resolved.

For Applicant

Unspecified Financial

Unknown

—

1.s

The applicant's nine year period of financial difficulties requires a sustained demonstration of financial responsibility before considering a favorable change has been made in her financial habits.

Against Applicant

Unspecified Financial

Unknown

—

1.t

The applicant's financial problems are likely to recur.

Against Applicant

Unspecified Financial

Unknown

—

1.u

Applicant denied subparagraph 1.u., claiming she had paid the debt.

Against Applicant

Unspecified Financial

Denied

—

1.v

Applicant admitted the remaining debts.

Against Applicant

Unspecified Financial

Admitted

—

1.w

Applicant indicated an intention to pay the smaller bills by June 2003.

Against Applicant

Unspecified Financial

Unknown

—

1.x

Applicant's sworn statement (May 13, 2003) concludes with a personal financial statement (PFS) showing she was current on two creditors and had a monthly net remainder of $3,385.00.

Against Applicant

Unspecified Financial

Unknown

—

1.y

Applicant's response to the first creditors identified in the interrogatories (GE 9, subparagraph 1.u. of the SOR) is "The account has been turned over to a local Debt Collection Agency. Please see attached information re: consistent payments."

Against Applicant

Unspecified Financial

Unknown

—

1.z

After examining the enclosures (the enclosures are either dated April 19 and 22, 2004), there are payment ledgers that show payments of $511.55 to an unidentified creditor, but I do not find documentary proof the 1.u. creditor was paid.

Against Applicant

Unspecified Financial

Unknown

—

1.aa

In response to the insufficient funds checks (subparagraphs 1.aa. and 1.bb.), Applicant stated the debts were turned over to the local collections service.

Against Applicant

Unspecified Financial

Unknown

—

1.bb

She recommended review of enclosed forms supposedly showing proof of payment. The enclosed forms show Applicant was contacted on April 22, 2004 about certain debts, including 1.aa. and 1.bb. The only indicators showing the debts were paid is the handwritten letters "pd" next to the insufficient check accounts.

Against Applicant

Unspecified Financial

Unknown

—

1.cc

Applicant voluntarily returned a car (subparagraph 1.cc.) to the dealer because the family moved to the southwestern part of the United States for health reasons.

Against Applicant

Auto Loan Debt

Unknown

—

1.dd

Additionally, her husband thought the dealer breached the contract as they had promised not to require payments until 45 days after the purchase. Instead, they required payments 15 days after the purchase.

Against Applicant

Unspecified Financial

Unknown

—

1.ee

Applicant claims she intended to establish a payment plan to the 1.cc. and 1.dd. creditors when she had the money.

Against Applicant

Unspecified Financial

Unknown

—

1.ff

You petitioned for Chapter 7 bankruptcy on about February 3, 2005 in the United States Bankruptcy Court, District of Arizona. Your dischargeable debts were discharged on or about July 2005.

Against Applicant

Bankruptcy Filing

Unknown

—

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Case Profile

Summary

Why the Applicant Was Denied

Conditions Referenced

Key Rule Quoted

Procedural Posture

Cite For

Full decision

DEFENSE OFFICE OF HEARINGS AND APPEALS

HEARING

SYNOPSIS

APPEARANCES

FINDINGS OF FACT

POLICIES

CONCLUSION

FORMAL FINDINGS

DECISION

FOOTNOTES