Under state financial responsibility laws for motorists, a driver’s license may be suspended until a civil judgment debt is paid in full. In most cases this type of suspension will arise because of a lack of insurance, but a license may also be suspended because of failure to pay child support or some other financial responsibility. Of course, it is tough to make money to pay your debt when you do not have the ability to drive.
In 1971, the United State Supreme Court held in Perez v. Campbell that if the debt related to the financial responsibility law is discharged in bankruptcy, the license can be reinstated to the debtor. Consequently, many states will reinstate driving privileges once the debtor has filed his or her bankruptcy case. In most cases the debtor simply submits a copy of the bankruptcy petition to the DMV and requests reinstatement. Of course, the debt must be listed in your bankruptcy schedules! There may be a reinstatement fee or insurance requirements, like proof of SR-22 insurance, before the DMV will reinstate driving privileges.
Some debts, like money owed to a person or insurance company for a simple fender-bender, can be discharged through a Chapter 7 bankruptcy case. Chapter 7 can wipe out civil judgments or monetary damages for car accidents. If the debt is not dischargeable during Chapter 7, like a debt arising from a DUI or from malicious injury, filing a Chapter 13 bankruptcy can restore your license when you demonstrate full payment through the bankruptcy case. However, if your case is dismissed for any reason, including non-payment, then the DMV has the power to re-suspend your license because the debt has not been paid.
If you have a debt that violates a state financial responsibility law and are in danger of losing your license, speak with an experienced bankruptcy attorney about your options. The best time to file bankruptcy is before the state suspends your license. In most cases the license suspension can be avoided. If your license has already been suspended, filing a bankruptcy case may restore your driving privileges while you discharge or repay the debt.