## Facts

- Adolfo and Emma Perez, Arizona residents, were uninsured motorists.
- After an automobile accident involving Mr. Perez, a damages judgment was entered against him.
- Mr. Perez could not pay and later received a discharge in bankruptcy under § 17 of the federal Bankruptcy Act.
- Arizona’s Motor Vehicle Safety Responsibility Act, Ariz. Rev. Stat. § 28-1163(b), provided that a “discharge in bankruptcy” would not relieve a judgment debtor from the Act’s requirements.
- Arizona officials suspended the Perezes’ driver’s licenses and vehicle registrations because the accident judgment remained unpaid despite the bankruptcy discharge.
- The Perezes sued in federal court, alleging the Arizona scheme conflicted with the Bankruptcy Act and violated the Supremacy Clause; the district court rejected the claim, and the Ninth Circuit affirmed.

## Issues

1. Whether Arizona’s statutory refusal to treat a bankruptcy discharge as relieving an accident judgment debtor from license/registration suspension requirements conflicts with § 17 of the federal Bankruptcy Act.
2. Whether, under the Supremacy Clause, the Arizona law is preempted because it obstructs the Bankruptcy Act’s objectives by pressuring payment of a discharged debt.

## Decision

- The Supreme Court reversed the Ninth Circuit and remanded.
- The Court held, 5–4, that Ariz. Rev. Stat. § 28-1163(b) directly conflicts with § 17 of the Bankruptcy Act and is unconstitutional under the Supremacy Clause.
- The majority reasoned that the Arizona scheme effectively conditioned restoration of driving privileges on satisfaction of a debt that federal bankruptcy law had discharged.
- The Court stated that earlier decisions upholding similar state schemes lacked authoritative force to the extent inconsistent with Supremacy Clause principles that invalidate state laws frustrating federal objectives.
- A separate opinion would have upheld the statute as applied to Adolfo Perez while agreeing only as to Emma Perez, characterizing the statute as a highway safety and financial responsibility measure rather than debt collection.

## Legal Principles

- Federal bankruptcy discharge policy provides the debtor a “fresh start” by fully discharging debts except those specifically preserved by federal law.
- Under Supremacy Clause obstacle preemption, a state law is invalid if it stands as an obstacle to accomplishing Congress’s full purposes and objectives.
- A state may not use licensing or similar regulatory mechanisms to impose practical coercion to repay a debt that federal bankruptcy law has discharged.
- State characterizations of a law’s purpose do not control where the law’s operation frustrates the effectiveness of federal law.

## Conclusion

The Court invalidated Arizona’s post-bankruptcy license and registration suspension scheme because, by withholding driving privileges until a discharged accident judgment was paid, it obstructed the Bankruptcy Act’s “fresh start” objective and was therefore preempted by federal law under the Supremacy Clause.


Perez v. Campbell, 402 U.S. 637 (1971)