The Extraordinary Tools of Bankruptcy: Reinstating Your Driver’s License

Bankruptcy can often do SO much more than just write off debts. In many (but not all circumstances) it can get your license back.

The filing of a bankruptcy case will reinstate a suspended driver’s license under some of the most common kinds of suspensions.  Two of the most important kinds are suspensions resulting from 1) failing to pay a judgment from a motor vehicle accident while driving uninsured; and 2) failing to pay traffic tickets.

This blog post focuses on the first of these. We’ll cover the second kind of suspension in the next one.

Unpaid Judgment from Vehicle Accident While Uninsured

Since there are quite a few different kinds of suspensions, let’s make clear what kind this one is.

If you get into a car accident while you are not insured, and the other driver or some other involved party sues and gets a judgment against you legally establishing that you owe damages arising out of the accident, state laws generally give you a certain very limited amount of time to pay that judgment. If you don’t do so, your driver’s license is suspended for failure to fulfill your financial responsibilities as a driver. You owe a debt arising from a vehicle accident for which you were apparently at fault at least in part, a debt that you could not pay because of lack of insurance.

If by filing bankruptcy you can discharge (legally write off) that debt, then you no longer owe that debt, and the reason for the suspension goes away. Your driver’s license can then be reinstated.

Conflict between State and Federal Laws

How can this be if the state has a very legitimate interest in making its roads safer by enabling vehicle accident victims to be compensated for their injuries, and using license suspensions as part of its legal incentive for drivers to have insurance?

Yes, that’s certainly a valid state interest. But what if a state specifically says that it can suspend a person’s driver’s license or keep it suspended even after the person has discharged that debt in bankruptcy? Doesn’t that conflict with the complete discharge of that debt provided under federal bankruptcy law?

The U.S. Supreme Court Has Spoken: Perez v. Campbell

This conflict between state and federal law is just what the Supreme Court faced back in 1971 with an Arizona statute. As the Court stated:  

What is at issue here is the power of a State to include as part of this comprehensive enactment designed to secure compensation for automobile accident victims a section providing that a discharge in bankruptcy of the automobile accident tort judgment shall have no effect on the judgment debtor’s obligation to repay the judgment creditor, at least insofar as such repayment may be enforced by the withholding of driving privileges by the State.

The Court decided in favor of the debtors—in a 5-4 split decision—that the Arizona statute was in conflict with one of the main purposes of bankruptcy: to give debtors “a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of pre-existing debt” (quoting an earlier opinion). “There is no doubt… that Congress intended this ‘new opportunity’ to include freedom from most kinds of pre-existing tort judgments.”

The Exception of Non-Dischargeable Accident Debts

Not all debts arising out of an accident can be discharged under bankruptcy law. If the debt is of a kind that can’t be discharged, then any resulting license suspension cannot be revoked.

For example, under bankruptcy law debts for personal injury related to drunk driving can’t be discharged. (11 U.S.C. §523(a)(9)). So a judgment determining you were at fault because of this impairment would lead to a license suspension that bankruptcy could not revoke.

Also, if the lawsuit and resulting judgment is for personal injury and/or property damage and the conduct giving rise to the injury/damage was intentional, that may not be dischargeable IF the holder of the judgment timely objects to the discharge. (11 U.S.C. §523(a)(6)).

License Reinstatement Procedure

How quickly your license can be reinstated depends on local variations. A discharge occurs under Chapter 7 “straight bankruptcy” usually about 3 to 4 months after the case if filed, if all goes as it should. You may need to wait until the discharge is effective before being able to reinstate your license. But in some jurisdictions that procedure can be expedited. Talk with your attorney about the local practices.

Everywhere you will need to do the following:

• apply for license reinstatement with your state motor vehicle department, and pay the applicable reinstatement fees
• provide them proof of current insurance

Related posts:

The Extraordinary Tools of Bankruptcy: Avoid Hurting Your Favorite Creditor The Extraordinary Tools of Bankruptcy: Avoid Hurting Your Favorite Creditor The Extraordinary Tools of Bankruptcy: Make Your Creditor Pay Back Money Taken from You The Extraordinary Tools of Bankruptcy: The “Automatic Stay” The Extraordinary Tools of Bankruptcy: Undoing Judgment Liens