Can the state deny a license or permit because of bankruptcy?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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Written by Jeffrey Johnson
Insurance Lawyer Jeffrey Johnson

UPDATED: Jun 29, 2022

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The state generally cannot suspend a license because a person filed for bankruptcy. It is illegal for a governmental unit to deny, revoke, suspend, or refused to renew a license, permit, charter, franchise, or other similar grant to someone solely by reason of his or her having been a debtor, having been insolvent prior to discharge, or having failed to pay a dischargeable debt.

If a license was suspended prior to filing for bankruptcy, however, the state entity may or may not be required to reinstate the license until the individual has obtained a successful discharge. Some states do have procedures to reinstatement a license during bankruptcy. An attorney will be able to offer advice about provisions and exceptions are available in a specific jurisdiction. 

Also keep in mind that the protection offered through bankruptcy only protects bankruptcy related actions. For example, the state is seeking to suspend a license because a person failed to pay on a judgment rendered against them in a car wreck case. The individual can then file for bankruptcy.

The state cannot suspend a license as part of the collection activity. Alternatively, if the person is arrested for driving while intoxicated and they refuse to provide a breath sample, many states will automatically suspend the driver’s license. Even if the person has filed for bankruptcy, the suspension is permissible because it’s related to the criminal charge, not the bankruptcy filing. 


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