Loss of Driver’s License When You Have Not Paid a Debt: Is That a Possibility?

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Collection agencies and creditors routinely use threats of dire consequences for not paying debts, sometimes including a very unlikely threat of imprisonment—as if the possibility of being sued were not serious enough. Another common threat is loss of a driver’s license. Creditors often claim that if the debt is not paid, they will contact the Department of Motor Vehicles to have the debtor’s driving privileges suspended or revoked. 

The General Rule: Collection Agencies Cannot Have Your Driver's License Suspended

Generally, having your driver's license suspended is an empty threat. First, creditors and collections agencies have absolutely no authority over any state or DMV actions—and licenses are granted by the state. More specifically, a creditor or collection agency has no power to tell the DMV or any other state agency what to do, including telling them to suspend or cancel a driver’s license.

Secondly, the law doesn’t make having good credit or paying debts a condition for driving. You can owe $100 or a $1M (or more!), you could have legitimately fallen on hard times and intend to pay when possible, or you could be consiously walking away from your obligations, it just doesn’t matter. Paying debts is still not a requirement to drive.

However, with this general rule in mind, there is the bad news: state-associated debts are increasingly being used to suspend drivers’s licenses. The list of exceptions to the general rule is growing, and likely to continue to grow.

The Exceptions: When to Worry About Collection Threats

You have to distinguish between state and private activities, as well as between auto-related and non-auto-related debts. If the creditor is the state and you haven’t paid for a license or registration renewal, then the state may suspend your driving privileges. If it’s your auto insurer you owe, then a failure to pay could suspend or even terminate your insurance coverage, which could make it illegal to drive—indirectly suspecting your driving privileges. If the debt you owe results from a judgment arising from an auto accident—e.g. you drove negligently and crashed into someone who sued you and won—the accident itself might cause you to lose your license. However, all that said, in most states, the failure to pay the debt will not. The distinction in this case goes to meeting your responsibilities as a driver, not a debtor.

Specific Debts: Check Your State’s Laws and Regulations

The critical thing to remember is that each state is developing quite different methods of collecting debts. The following are meant to be illustrative, rather than suggesting every state has exactly the same rules for suspending a driver's license because of debt:

  • Library Fines: Wisconsin allows suspension. Similarly, the state may badger you if you fail to meet other municipal code requirements (such as shoveling snow form your sidewalk).
  • Oregon has 109 grounds for suspending your driver’s license . . . and 50 of those, at last count, had nothing to do with driving.
  • Parking Tickets are a way losing driving privileges virtually everywhere.
  • Child Support or Alimony? For example, New York State is said to be very aggressive in this area, viewing the violation (having a debt) as contempt of court.

The Most Common Risk: Being Sued for Money Owed

There are plenty of people deeply in debt—many of whom have even declared bankruptcy—who are still driving. The mere act of failing to pay a debt will not cause you to lose your driver's license or have your driving privileges suspended. This is not something your creditor can do to you.

As a general matter, the only time you could suffer criminal liability for nonpayment of a debt is when you can be shown to have lied or committed intentional or negligent deceit to obtain the credit. In other words, if you committed fraud. In that case, though, it would be the fraud you’re going to jail for, not the debt.

The bottom line is that most creditors can’t directly threaten you with the state’s legal apparatus. Be sure to keep track of it if they are making these type of threats (or even if you just think they are); document the essential details, such as when they called—especially if it occurs so often that it could constitute harassment. If there is a name to go with the voice, write it down. Save any correspondence. But don't make any threats to them—you gain nothing by doing so—but remember that you do have rights. One thing to try, to enforce your rights: if the collections agency is working with a state agency, or licensed in your home state, then you may be able to effectively “turn the tables” on them. If they are contacted to collect a state judgment, for example, they may be at risk of losing that contract if enough complaints come in. And if they are violating your consumer rights as a debtor, then your state Attorney General may step in and shut them down. In an ironic turn of fate, the creditor may end up owing you.

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