the bank won't lower her principal and she has a security clearance she needs to protect
. she is considering retirement and chap 7.
Your sister NEED NOT RETIRE, at least in respect of her security clearance.
The key to preserving one's clearance is to be truthful about one's credit/debt problems. If she conceals her problems, then she is going to get fried (and possibly fired). If she is forthcoming about her credit issues, then these seem unlikely to be a big problem.
Your sister should fully disclose her credit issues to the Special Security Officer (SSO) responsible for her clearance. She should be proactive about this.
If she holds a Top Secret clearance, she is absolutely REQUIRED to disclose these issues.
The issue for the government is whether credit issues impair the trustworthiness of the person with the issue.
Thresholds to obtain and maintain a Secret clearance are actually pretty low. Maintaining a Top Secret clearance is more difficult. If your sister conceals her problems, she will probably lose her clearance. I serious doubt that disclosure would cause the loss of a Secret clearance and timely disclosure of the issues would probably preclude the loss of a Top Secret clearance, as well.
Also, bear in mind that many Top Secret issues are matters that your sister would continue to KNOW and would have an obligation to protect even if she lost her clearance. Clearance management personnel are aware of this and probably also realize that loss of employment would put your sister, her knowledge and her reliability at greater peril than working with her to find a solution consistent with maintaining her clearance.
In a TS environment, they would much sooner shift her away from particularly sensitive information, while continuing her employment and probably without even suspending her clearance UNLESS she has already been concealing these problems.
Also, she should bear in mind that credit problems which arise from the housing bubble are very likely to be viewed somewhat differently than similar issues arising from gambling or drug problems, etc., which suggest other character problems.