We’re continuing a series of blog posts about the powerful but less obvious benefits of bankruptcy. Bankruptcy gives you immediate and long-term relief from your debts. But it can do other very important things you may not know about. Today we get into how bankruptcy can reinstate a suspended driver’s license.
Reasons for Driver’s License Suspension
Whether your filing of a bankruptcy case can reinstate your suspended driver’s license depends on the reason for the suspension. Two of the most common kinds are suspensions are from:
1) not paying a judgment from a motor vehicle accident while driving uninsured; and
2) failing to pay traffic tickets.
This blog post focuses reinstating your license from the first one of these kinds of suspension. We’ll get to the second one next.
Judgment from a Vehicle Accident While Driving Uninsured
Let’s make clear how license suspensions happen in this situation. A person gets into a car accident while driving uninsured. The accident results in some property damage and/or personal injury for the other driver(s) or for passengers. The other driver or somebody else involved sues the person (usually through their insurance company). The person sued then gets a judgment against him or her from that lawsuit. That judgment legally establishes that the uninsured driver owes damages arising out of the accident. The judgment determines that the driver was at least partially at fault and must pay those damages.
If such a judgment was taken against you, your state’s laws likely gave you a very limited amount of time to pay that judgment. So what happens if you don’t pay it off within that time?
You guessed it: your driver’s license gets suspended. The idea is that you failed to fulfill your financial responsibilities as a driver. You legally owe a debt from an accident that you were at least partially at fault for. And it’s a debt that you didn’t pay, probably because you didn’t have insurance.
Bankruptcy Wipes Out the Debt, No More Reason for the Suspension
The good news is that by filing bankruptcy you can discharge (legally write off) that debt. As soon as you no longer owe that debt, the reason that your license got suspended is gone. So the license can be reinstated.
State vs. Federal Laws
But wait a minute. Doesn’t your state have the right to make laws about this and have them be respected by federal bankruptcy laws?
Yes, the state has a legitimate interest in keeping its roads safe. It can help do that by requiring drivers to have liability insurance. That way, vehicle accident victims are more likely to be compensated for their property damages and personal injuries. So states can use license suspensions as part of its incentive for drivers to have insurance.
But what if a state’s law specifically says that it can suspend a person’s driver’s license even if the person has discharged that debt in bankruptcy? Doesn’t that conflict with federal bankruptcy law’s granting of a full discharge of that debt? Discharging a debt is of limited benefit if you still can’t get your license back for not paying the debt.
The Supreme Court Has Resolved this in Favor of Debtors
This particular conflict between state and federal law is one that the U.S. Supreme Court addressed and resolved decades ago. In Perez v. Campbell the Court laid out the issue in one long sentence:
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.
402 U.S. 637, 643 (1971). In other words, can a state require a person to pay a debt from a vehicle accident in order to reinstate the person’s driver’s license, even after that debt was discharged in bankruptcy?
The Court decided this in favor of the debtors. A state cannot require payment of a bankruptcy discharged debt to reinstate a license. The state 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 Supreme Court opinion]. The Court concluded: “There can be no doubt . . . that Congress intended this ‘new opportunity’ to include freedom from most kinds of pre-existing tort judgments.” (402 U.S. 637, 648.) “We think it clear that [the state statute] is constitutionally invalid.” (At 656.)
If your driver’s license was, or is about to be, suspended because of an unpaid debt arising from an uninsured motor vehicle accident, see a Louisville bankruptcy lawyer. There’s a good chance you can reinstate your license—or prevent it from being suspended—through bankruptcy.