How Does Filing Bankruptcy Affect My Suspended Driver’s License?

Filing for bankruptcy can be helpful when you can’t afford to pay back your debts and you need a fresh start. However, bankruptcy can also be a useful tool to help you get your driver’s license reinstated. In this article, you will learn about the different situations which may result in having your driver’s license suspended and how bankruptcy can help get your driver’s license back.

When Can Bankruptcy Help Me Get My Suspended Driver’s License Back?

Many states have statutes that allow for the suspension of a driver’s license for unpaid debts. These debts include judgments against you because of unpaid parking tickets, child support, even student loans. You’re also at risk of a license suspension because of an auto accident even if you have car insurance. 

If you were at fault in a car accident, your insurance company will pay for the property damage to the other vehicle. However, the insurance company will only pay the maximum amount of the insurance policy. If your insurance coverage doesn’t reimburse the other driver for the full amount of damages due, you would owe the difference. For example, if the damages from the car is $25,000 but your insurance policy covers $10,000 in property damages, you would owe the difference of $15,000. If you get sued for the difference, unless you reach an agreement to pay back the balance, your driver’s license could be suspended. If you do reach an agreement, but at some point stop making payments, your driver’s license will be at risk again of being suspended.

Once there is a court order requiring that a debt be paid, a garnishment order can be issued against you. This means that up to 25% of every paycheck may be taken away from you and applied towards the balance of the debt until it’s paid in full. However, if you file for bankruptcy, the automatic stay stops lawsuits and judgment orders, including garnishment, so creditors can’t continue to take action against you. Once you receive your bankruptcy discharge, the debt from the car accident will be wiped out and your driving privileges may be reinstated if you comply with your state’s requirements. This is possible thanks to a U.S. Supreme Court case known as Perez v. Campell. In that case, the U.S. Supreme Court ruled that even though the state of Arizona had laws for suspending a driver’s license due to a car accident, the debt associated with the accident could be eliminated with bankruptcy. Because this is a U.S. Supreme Court case, that law now applies to every state. So, if the only reason your license remains suspended is nonpayment of an obligation that is discharged in bankruptcy, the state has to reinstate your license. However, not all debts can be discharged in bankruptcy and there are certain scenarios where a debt for a personal injury case won’t be wiped out with bankruptcy.

Chapter 13 and License Reinstatement

When your driver’s license is suspended for nonpayment of debts, you will need to repay that debt unless you file for bankruptcy. If you can’t afford to repay the debt, you are unable to reach an agreement with the judgment creditor, or you don’t qualify for a Chapter 7 bankruptcy, you still have the option of proceeding with a Chapter 13 bankruptcy. Chapter 13 can help provide a structured repayment plan that lasts between 3-5 years. The monthly payment plan is calculated based on your income, expenses, and value of nonexempt assets. This will help ease the burden of paying back the debts that caused your license to be suspended since you won’t have to make a lump-sum payment. Once you complete the bankruptcy, the judgment will be erased.

When Can’t Bankruptcy Help with License Suspension?

Unfortunately, bankruptcy doesn't cover all scenarios because some debts such as certain taxes, even traffic tickets are often non-dischargeable. Besides non-dischargeable debts, there may be situations in which debt related to a car accident or personal injury case can’t be wiped out with bankruptcy. For example, if you were in an auto accident because of a DUI or drunk driving, a bankruptcy won’t result in the reinstatement of your driver’s license. As a result, you’ll have your driving privileges revoked until that debt is paid in full. 

Unfortunately, unexpected situations such as Covid-19 could also result in a suspended driver’s license. For example, you may have lost your job or are a furloughed employee because of the Coronavirus pandemic, resulting in a substantial loss of income. If you can’t afford to pay child support and you fall behind with your payments, this could result in a suspension of your driver’s license. If you’re caught driving with a suspended license, depending on the laws in your state, you could also be arrested and charged with a criminal infraction. To avoid this scenario, you would need to file a petition/motion with the court seeking a temporary reduction in child support. If you’re facing this situation, you should immediately seek the legal advice of a law firm that handles child support cases to better understand your options. 

Conclusion

If your driver’s license has been suspended, consider talking to a bankruptcy attorney about the different options available to you. The majority of bankruptcy lawyers offer free consultations, so you have nothing to lose. If you can’t afford a bankruptcy lawyer, remember that Upsolve is here to help. Try our free web app to learn more.