November 9, 2015
The State of Michigan has claimed that the purpose of the Driver Responsibility Law is to encourage traffic safety by deterring dangerous traffic behavior. However, Driver’s Responsibility Fees can often result in thousands of dollars of obligations to the State. The Department of Treasury can take collection action if payments aren’t set up and made timely including income tax offsets, wage levies, bank account levies or levies on any other assets. This is when a bankruptcy may be helpful.
Legally, 11 USC 523(a)(7) states that debt is non-dischargeable (i.e., cannot eliminate with Chapter 7) if it is for “a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit.” There are issues on both sides regarding whether the drivers responsibility fees fall into this category. There is no specific bankruptcy case on point construing Michigan’s Driver Responsibility statute.
From a practical standpoint, the State of Michigan has not contested the dischargeability of the Driver Responsibility Fees and clients have been able to restore their licenses following their bankruptcy discharge. In our experience, once your bankruptcy is discharged, as long as there are no active suspensions or revocations on the driving record and reinstatement fee of $125.00 is paid, a driver’s license can be reinstated.
It is also worth noting that the Driver Responsibility Fees will be phased out and eventually eliminated altogether in 2019. Public Act 250 of 2014 amends the law to gradually phase out the fee portion starting October 1, 2015 (see http://www.michigan.gov/documents/driverresponsibility/DRFPhase-OutChart_470541_7.pdf for a full list of changes), and will end in October 2019 (other fees, fines and court costs may still apply).