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Public Licenses in Bankruptcy

There are a variety of licenses issued by government bodies that debtors might have before commencing a New York bankruptcy case, typically driver’s licenses and occupational licenses. As a result, debtors might want to know how the Bankruptcy Code treats them to ensure that they can keep them.

The Bankruptcy Code clearly sides with debtors when it comes to public licenses. Specifically, section 525(a) broadly prohibits governmental units from discriminating against licensed debtors “solely” on account of their bankruptcies, and the statute even applies to licenses held by people associated with debtors. That means debtors should expect to be able to obtain, use, or renew any license issued to them by a governmental authority after bankruptcy, whether discharges were entered or not.

The important word in section 525(a) is “solely,” as in, a licensing governmental unit may act against debtors’ licenses for reasons other than bankruptcy. Indeed, there are occasions when a bankrupt debtor, or someone associated with that debtor, has engaged in other behaviors the licensing authority considers odious. For example, a debtor who defrauds the bankruptcy court can’t have a professional license revoked just for filing bankruptcy; however, the licensing authority can revoke the license on account of the debtor’s fraudulent acts.

It’s fairly clear that section 525 means to protect debtors who act in good faith from those who don’t. Usually professional licensing bodies, like a state bar, tend to have their own safeguards in place for punishing malfeasance by their licensees. Those rules still apply irrespective of the bankruptcy.

In all likelihood, the most common situation debtors run into is owing renewal fees for their licenses and then filing bankruptcy. The license can’t be withheld from a debtor on account of a bankruptcy, but the fees must still be paid to keep the license. Bankruptcy does not allow free licenses. This might not be so much of a problem for debtors in chapter 7 because any debts discharged can free income to pay the licensing fee, or the debtor’s income is too low already, which is a problems bankruptcy can’t solve.

Affordability can become more of a problem in chapter 13 because debtors might not have enough income outside of their repayment plans to maintain licenses. Usually driver’s licenses aren’t so expensive as to cause an issue, but professional licenses and membership dues might be more expensive and more importantly are necessary to continue engaging in the employment that pays for the plan. In those circumstances, it’s best to include such costs in the plan in the first place, but sometimes the renewal fees occur infrequently enough that only a modification to the plan is necessary.

Keeping a license offered by a public body isn’t usually much of a challenge in bankruptcy, but if there is a problem, then talking to an experienced New York bankruptcy lawyer can help.

For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA
718-855-6840
http://nybankruptcy.net/

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