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How Bankruptcy Might Help with Some California License Suspensions

Swedish Transport Agency (Transportstyrelsen), uploaded by Fry1989 [Public domain], via Wikimedia CommonsCalifornia law allows for license suspension, including both driver’s licenses and professional licenses, for nonpayment of certain debts or other obligations. In some cases, a Chapter 7 or Chapter 13 bankruptcy can help an individual get his or her license reinstated by enabling him or her to catch up on payments more quickly or efficiently. Not all of these debts and obligations are subject to discharge in Chapter 7 or Chapter 13. Personal bankruptcy can still be a useful tool, however, for people whose financial difficulties leads to license suspension, which often leads to even more financial difficulties.

First, a bit of reassurance. Generally, only state agencies and courts have the authority to suspend a license for unpaid debts. Debt collectors, who might be collecting for private debt like unpaid credit cards, do not have any such authority. License suspension is only possible where state law has specifically authorized it. Under California law, this includes unpaid judgments for automobile accidents, nonpayment of state tax, and nonpayment of child support. Bankruptcy itself is not grounds for license suspension, since the Bankruptcy Code prohibits discrimination on the basis of a bankruptcy filing. 11 U.S.C. § 525.

Unpaid Judgments and Penalties under the California Vehicle Code

California law allows the Department of Motor Vehicles (DMV) to suspend a driver’s license for failing to satisfy a judgment resulting from an automobile accident. The DMV will typically reinstate a license upon payment of the judgment amount, or release by the creditor. It should also reinstate a license upon receipt of an order from a bankruptcy judge discharging the judgment debt.

The DMV may also suspend a person’s license for failure to meet bail and other obligations for Vehicle Code violations. See Ca. Veh. Code §§ 13364, 13365, and 40508. A bankruptcy proceeding may assist a person with making required payments, but the debt itself may be excluded from discharge as a “fine [or] penalty…payable to and for the benefit of a governmental unit…[that] is not compensation for actual pecuniary loss.” 11 U.S.C. § 523(a)(7).

Unpaid State Taxes

The state may suspend a person’s driver’s license and any professional licenses they may hold if they are in arrears for certain state taxes. Ca. Bus. & Prof. Code §§ 31(d), 494.5. License suspension is determined based on public disclosure of tax delinquencies. State law provides for the publication of the 500 largest delinquencies in excess of $100,000 in two groups: sales and use tax, Ca. Rev. & Tax. Code § 7063, and franchise and income tax, id. at § 19195. Tax debt is dischargeable in bankruptcy in some circumstances. 11 U.S.C. § 523(a)(1).

Unpaid Child Support

The California Department of Child Support Services (DCSS) may suspend a person’s driver’s license, and any professional boards may suspend a professional license, if they have child support arrearages of more than four months. Ca. Fam. Code § 17520(e)(3); Ca. Bus. & Prof. Code §§ 31(b), 490.5. Bankruptcy may help a person catch up on payments, but federal law expressly excludes child support debt from discharge. 11 U.S.C. § 523(a)(5).

Bankruptcy attorney Devin Sawdayi has represented individuals and families in the Los Angeles area since 1997, helping them repair their finances through Chapter 7 or Chapter 13 bankruptcies with dignity and respect. To schedule a free and confidential consultation to see how we may can assist you, please contact us today online or at (310) 475-9399.

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Ninth Circuit Bankruptcy Appellate Panel Considers “Good Faith” Requirement for Discharge of Student Loans, Los Angeles Bankruptcy Lawyer Blawg, April 9, 2014

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Photo credit: Swedish Transport Agency (Transportstyrelsen), uploaded by Fry1989 [Public domain], via Wikimedia Commons.