Suspended New Jersey Driver’s License Due to Non-payment of Surcharges—Can Filing for Bankruptcy Discharge the Surcharges and Restore Driving Privileges?

The good news is yes. If your driver’s license has been suspended due to non-payment of motor vehicle surcharges and you are financially unable to pay back those surcharges, you may be able to get your driving privileges restored by filing for bankruptcy and discharging the surcharges. Pursuant to N.J.S.A. 17:29A-35(b)(2), suspension of driving privileges may be a consequence of failure to pay Motor Vehicle Commission (MVC, which was formerly known as the DMV) surcharges. However, these surcharges are dischargeable debt in both a Chapter 7 and a Chapter 13 bankruptcy case.

MVC surcharges are fines imposed upon a driver in addition to other penalties or court fines that have already been assessed. They are imposed upon drivers who have received excessive points on their licenses or who have committed specific violations, such as driving under the influence. The New Jersey driver whose driving privileges has been suspended because of non-payment of surcharge debt faces an especially difficult time as driving privileges are generally needed to commute to school or work and earn a living.

When a debt is discharged in bankruptcy, a debtor is released from the responsibility for payment of that debt and a creditor may not pursue collection actions for that debt.

Generally, debt related to any “fine, penalty, or forfeiture payable to and for the benefit of a governmental unit” is not dischargeable in bankruptcy proceedings. 11 U.S.C.A. § 523. However, the bankruptcy court has determined that MVC surcharges can be discharged because they are actually payable to the Market Transition Facility (MTF), which is a state-created insurer liquidating facility. The MTF is a non-contingent beneficiary of surcharges imposed upon drivers by the MVC and therefore is not a governmental unit within the meaning of 11 U.S.C.A. § 523. Consequently, MVC surcharges are properly dischargeable debts.

In a 1996 case called In re Alicea, the bankruptcy court held that MVC surcharges were dischargeable in Chapter 13 bankruptcy. 199 B.R. 862 (Bankr. D.N.J. 1996). The debtors in that case, Mr. and Mrs. Alicea, had MVC surcharges in the total amount of $930.23. Their Chapter 13 payment plan classified the MVC as an unsecured creditor, which meant that the Aliceas were not required to repay the surcharges to the MVC. The MVC conceded that surcharges were dischargeable debt in Chapter 13, but they argued that it was a violation of public policy to discharge those surcharge without full or substantial payment. The court disagreed.

Although the Alicea court declined to decide on the issue of dischargeability of surcharges in Chapter 7 bankruptcy, the court observed that Congress granted broader discharge under Chapter 13 than Chapter 7. The court ruled that it was proper to discharge these surcharges without full or substantial payment.

Likewise, in a Chapter 7 bankruptcy case, the Court reached the same result. In In re Pulley, the bankruptcy court found that MVC surcharges fall within the category of dischargeable debt. The debtor in this case, Mrs. Pulley, had her driver’s license suspended in June 1991 for failure to pay parking violations. 295 B.R. 28 (Bankr. D.N.J. 2003) aff'd, 303 B.R. 81 (D.N.J. 2003). Approximately one month later, she was involved in an automobile accident, where she received a ticket for driving without automobile insurance. On September 17, 1991, she was convicted of driving with a suspended license and driving without insurance. She received MVC surcharge bills on September 1 of 1992, 1993, and 1994. In December 1992 and in October 1993, her license was once again suspended, specifically for failure to pay these surcharges. She filed a Chapter 7 bankruptcy petition in March 1997. In December 1997, she received a letter from the State of New Jersey recognizing discharge of her debts. However, the letter indicated that she was required to pay her MVC surcharge debt in the total amount of $1,429.24. The court emphasized that the overall purpose of the Bankruptcy Code is to give debtors an opportunity for a “fresh start.” The court discharged the MVC surcharges accrued by Mrs. Pulley when she filed for Chapter 7 bankruptcy because she was entitled to a “fresh start,” discharging these surcharges.